The Macroeconomics Seminar:
Time: 12:15 pm – 13:30 pm
Date: 09 th of May 2022
Room 3001

Francesco PAPPADA (PSE and Banque de France) “Sovereign default and imperfect tax enforcement”

Abstract : In economies with imperfect tax enforcement, the dynamics of tax compliance mitigates the impact of fiscal policy on default risk. We build a model of sovereign debt with limited commitment and imperfect tax enforcement to assess the consequences of this novel stylized fact. Fiscal policy persistently affects tax compliance, which impacts future fiscal revenues and default risk. The interaction of imperfect tax enforcement and limited commitment strongly constrains the dynamics of optimal fiscal policy and leads to costly fluctuations in consumption.

Organizers:
Olivier LOISEL  (CREST)

Sponsors:
CREST