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Public Finance under Political Instability and Debt Conditionality

Bohn, Frank (2002) Public Finance under Political Instability and Debt Conditionality. Working Paper. University of Essex, Department of Economics, Economics Discussion Papers, Colchester.


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This paper presents an intertemporal political economy model of sustainable public finance relevant for many developing or transition countries: instability is inherent to the political structure and foreign debt is a crucial source of government revenue. The main results are: First, political instability causes myopic government behaviour as it induces higher debt levels, but it does not lead to an increase in inflation taxation as in Cukierman, et al. (1992). Second, debt conditionality aiming at monetary stability is particularly effective in heterogeneous societies with unstable governments. Third, it is shown that IMF policies requiring debtor countries to achieve both monetary and fiscal stability are suboptimal.

Item Type: Monograph (Working Paper)
Uncontrolled Keywords: monetary and fiscal stability, political economy, IMF conditionality, government revenue, debt ceiling, public investment
Subjects: H Social Sciences > HB Economic Theory
Divisions: Faculty of Social Sciences > Economics, Department of
Depositing User: Users 161 not found.
Date Deposited: 06 Mar 2014 10:24
Last Modified: 07 Mar 2014 09:05

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