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State Capacity, Conflict, and Development

Timothy Besley; Torsten Persson
Econometrica 2010 78(1), 1-34 open access
The absence of state capacities to raise revenue and to support markets is a key factor in explaining the persistence of weak states. This paper reports on an on-going project to investigate the incentive to invest in such capacities. The paper sets out a simple analytical structure in which state capacities are modeled as forward looking investments by government. The approach highlights some determinants of state building including the risk of external or internal conflict, the degree of political instability, and dependence on natural resources. Throughout, we link these state capacity investments to patterns of development and growth.

Time Consistency of Fiscal and Monetary Policy: A Solution

Mats Persson; Torsten Persson; Lars E. O. Svensson
Econometrica 2006 74(1), 193-212 open access
This paper demonstrates how time consistency of the Ramsey policy -the optimal fiscal and monetary policy under commitment -can be achieved. Each government should leave its successor with a unique maturity structure for the nominal and indexed debt, such that the marginal benefit of a surprise inflation exactly balances the marginal cost. Unlike in earlier papers on the topic, the result holds for quite a general Ramsey policy, including timevarying polices with positive inflation and positive nominal interest rates.

Time Consistency of Fiscal and Monetary Policy

Mats Persson; Torsten Persson; Lars E. O. Svensson
Econometrica 1987 55(6), 1419 open access
This paper demonstrates how time consistency of the Ramsey policy–the optimal fiscal and monetary policy under commitment–can be achieved. Each government should leave its successor with a unique maturity structure for the nominal and indexed debt, such that the marginal benefit of a surprise inflation exactly balances the marginal cost. Unlike in earlier papers on the topic, the result holds for quite general Ramsey policies, including timevarying polices with positive inflation and positive nominal interest rates. We compare our results with