Premio Anual de Investigación Económica “Dr. Raúl Prebisch”

Linking Public Consumption to Private Overborrowing

Franco Degiuseppe

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2025-11 - Primer Premio (compartido) / Categoría Jóvenes Profesionales Resumen: We study the interaction between public consumption and private external debt in a SOE with a flow collateral constraint. While standard models (e.g., Bianchi AER 2011) show that households overborrow by not internalizing general equilibrium effects on the real exchange rate, this paper highlights how public consumption could amplify these inefficiencies. Moreover, it explores how a Ramsey planner can implement optimal capital control taxes to address these distortions.