@workingpaper {16269,
	title = {Efficient Expropriation: Sustainable Fiscal Policy in a Small Open Economy},
	year = {2006},
	abstract = {We study a small open economy characterized by two empirically important frictions {\textendash} incomplete financial markets and an inability of the government to commit to\&nbsp;policy. We characterize the best sustainable fiscal policy and show that it can amplify\&nbsp;and prolong shocks to output. In particular, even when the government is completely\&nbsp;benevolent, the government{\textquoteright}s credibility not to expropriate capital endogenously varies\&nbsp;with the state of the economy and may be {\textquotedblleft}scarcest{\textquotedblright} during recessions. This increased\&nbsp;threat of expropriation depresses investment, prolonging downturns. It is the incompleteness of financial markets and lack of commitment that generate investment cycles\&nbsp;even in an environment where first best capital stock is constant.},
	author = {Mark Aguiar and Manuel Amador and Gita Gopinath}
}
