English, Article edition: Default, Reputation and Balanced-Budget Rules David R. Stockman

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Physical Description
  • article
Language
  • English

Edition details

Title
  • Default, Reputation and Balanced-Budget Rules
Author
  • David R. Stockman
Physical Description
  • article
Notes
  • Is a balanced-budget rule compatible with a government honoring its debt obligations? According to the conventional explanation, governments honor their debt obligations to maintain a good reputation for future borrowing. The ability of borrowing is desirable because it allows for greater tax smoothing. However, a balanced-budget rule limits the ability to smooth taxes, rendering a large class of competititve equilibria not compatible with a government honoring its debt obligations. The reputation model predicts default as the equilibrium outcome under a balanced-budget restriction. Insofar as this prediction is falsified by empirical observation, mechanisms other than reputation must be at work. (Copyright: Elsevier)
  • RePEc:red:issued:v:7:y:2004:i:2:p:382-405
Language
  • English
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