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This paper explores the role of public debt and fiscal deficits on factor productivity in an economy with credit market frictions and heterogeneous firms. When credit market conditions are sufficiently weak, low interest rates permit the government to run Ponzi schemes so that permanent primary deficits can be sustained. For small enough deficit ratios, the model has two steady states of which one is an unstable bubble and the other one is stable. The stable equilibrium features higher levels of credit and capital, but also a lower interest rate, lower total factor productivity and output. The model is calibrated to the US economy to derive the maximum sustainable deficit ratio and to examine the dynamic responses to changes in debt policy. A reduction of the primary deficit triggers an expansion of credit and capital, but it also leads to a deterioration of total factor productivity since more low-productivity firms prefer to remain active at the lower equilibrium interest rate.

This paper offers a methodological contribution to the empirical analysis of the relationship between banking and economic growth by suggesting a new indicator for the state of development of the banking system based on a measure of bank microeconomic efficiency. This choice helps to overcome the problem of causality and to capture the effects of banks' activity on growth. This new approach is then applied to analyse the relationship between the banking system and economic growth in the Italian regions, through a dynamic panel technique. The empirical results show the existence of an independent effect exerted by the efficiency of banks on regional growth.

ABSTRACTThis study examines an important issue regarding how tax avoidance affects a firm's investment inefficiency in Taiwan's semiconductor industry. In addition, the dynamic effect of a firm's investment inefficiency and spillover effect of investment inefficiency from competitors are also explored. This study adopts 44 listed firms from 2013 to 2021 and constructs the "competitor‐dependence matrix" to replace the "spatial‐dependence matrix" in the dynamic spatial autoregressive model. According to the difference generalized method of moments estimation, the primary finding of this study is that the tax avoidance has a statistically and significantly positive effect on a firm's investment inefficiency while it is overinvestment, but a negative effect while it is underinvestment. Moreover, the dynamic effect is statistically insignificant, but the spillover effect is statistically and significantly negative.

We show that (i) dynamic inefficiency may be empirically relevant in a modified Diamond model with imperfect competition, (ii) if fiscal policy is used to avoid inefficiency and maintain an optimal capital intensity, the required debt ratio will be inversely related to the growth rate, and (iii) austerity policies reductions in government consumption and entitlement programs for the old generation raise the required debt ratio.

This paper presents a dynamic model of election, government formation, and legislation in a parliamentary democracy with proportional representation in which the policy chosen in one period becomes the status quo for the next period. The electorate votes strategically by taking into account the likely governments that parties would form and the policies they would choose as a function of the status quo. The status quo thus affects both the election outcomes and the bargaining power of the parties during government formation. A formateur party thus has incentives to strategically position the current policy to gain an advantage in both the next election and the subsequent bargaining over government formation and policy choice. These incentives can give rise to centrifugal forces that result in policies that are outside the Pareto set of the parties.

We study the dynamic Ramsey problem of finding optimal public debt and linear taxes on capital and labor income within a tractable infinite horizon model with incomplete markets. With zero public expenditure and debt, it is optimal to tax the risky labor income and subsidize capital, while a positive amount of public debt is welfare improving. A steady state optimality condition is derived which implies that the tax on capital is positive, when savings are sufficiently inelastic to returns. A calibration of our model to the US economy indicates positive optimal taxes and a small but positive optimal debt level.