Financial Crises, Debt Volatility and Optimal Taxes

Number: 
839
Published: 
Classification JEL: 
F34, F41, H21
Keywords: 
Human capital agglomeration, Social returns, Private returns, Externalities, Uncertainty, Fiscal policy

We study financial crises in a small open production economy subject to credit constraint and uncertainty on the value of debt repayments. We find that the possibility of reducing the severity of future crises encourages the central planner (CP) to increa