World Debt Crisis

Economic policy in the USA at the beginning of the 1980s was a huge experiment that created all sorts of confusion across the world and was observed by economists with disbelief and amazement.

The interaction of heavily restrictive monetary policy, excessively expansive budgetary policy and a policy of massive investment incentives led to a truly explosive increase in US real interest rates, driving the dollar up to unprecedented heights and leading to massive capital imports into the USA via a current account balance that turned negative. The developing countries were confronted with a sudden change in the conditions of their loan contracts with developed countries. Several countries immediately reacted to this change in conditions by refusing to make payment, which was the external characteristic of the debt crisis.

However, the fact that high interest rates forced developing countries to abruptly limit their borrowing was almost more important. This limitation marked the beginning of a phase of stagnation, which raised the debt ratio instead of lowering it. As a result of US policy, the drivers of economic growth shifted from developing countries to the USA. 

Articles in refereed journals

"U.S. Tax Reform 1981 and 1986: Impact on International Capital Markets and Capital Flows“, National Tax Journal 41, 1988, pp. 327-340 (background paper for World Development Report, World Bank, 1988); (Download, 3.54 MB).

"Why Taxes Matter. A Comment on Reagan's Tax Reforms and the US-Trade Deficit“, Economic Policy 1, 1985, pp. 239-250; (Download, 276 KB).

Academic papers in conference volumes

"U.S. Tax Reform 1981 and 1986: Impact on International Capital Markets and Capital Flows“, in: K. Vogel, ed., Influence of Tax Differentials on International Competitivness, Kluwer Academic Publishers: Deventer 1990, pp. 25-58 (Download, 1.26 MB).