Why do governments in developing economies favor roads rather than schools in public investment scale-ups? We study this question using a dynamic general equilibrium model and argue that the different pace at which roads and schools contribute to economic growth, public debt intolerance, and political myopia are central to this decision. In a thought experiment with a large return differential in favor of schools, a benevolent government would intuitively devote the majority of an investment scale-up to them. However, the fraction of schools chosen by the government falls with increasing levels of debt intolerance and political myopia. In particular, political myopia is a meaningful explanation for the observed result to the extent that an extremely myopic government would not invest in schools at all.

The dynamic of the secondary market for sovereign debt has been affected by the presence of a peculiar category of holders: vulture funds. These funds, specializing in purchasing the debt of sovereign states in distress at a discounted market price, stay aloof from restructuring processes and then enforce their claims in courts to secure the face value. For low revenue debtor countries, paying the claims may involve reducing the resources available for basic services to the population. For very poor countries this also involves a significant regression in terms of development. Against this background, the purpose of this work is to inquire whether and to what extent there exists a rule permitting the suspending and rescheduling of payments so as to pay dues without impairing services. In order to find such a rule, inquiry is to be made into general norms: necessity and public policy. It is under the umbrella of the truly international public policy that the duty of a state to provide certain basic services to its population can be subsumed and the corollary of the suspension and rescheduling of these payments consistently with this duty can be applied.

This paper considers which currency option would be best for an independent Scotland. We examine three currency options: being part of a sterling currency zone, adopting the euro, or having an independent currency. No currency option is the best when considered against all criteria. Therefore, making the decision requires deciding which criteria are most important. Recent events around the world, particularly in Europe, show that it is essential to consider how an independent Scotland would seek to adjust to adverse economic circumstances. In economists' terms, it is important to think through the ‘off-equilibrium’ adjustment paths of each of the currency options. The amount of public debt, and so the capacity for a fiscal response, is a critical determinant of these paths and therefore of the optimal currency choice. Since commitment to a currency union by an independent country can only be conditional, an independent Scotland might find it optimal to abandon the currency union in the future if the financial stability advantages to having its own currency begin to outweigh any disadvantages due to trade and transactions costs.

This paper considers the origins and characteristics of the current economic crisis in Ireland. In particular, it examines how fiscal policy contributed to the crisis rather than preventing it. The paper gives details of the major fiscal tightening that is under way. By 2014 the authorities will have implemented a package of ex ante cuts equivalent to one-fifth of GDP. The costs of this package, together with the more permanent effects of the recession on potential output, are discussed and the legacy effects of the crisis for government indebtedness are analysed.