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| 1 |
ID:
141546
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| Summary/Abstract |
The Joint Comprehensive Plan of Action (JCPOA), reached by Iran, six other countries, and the European Union in Vienna in July, has sparked a heated political debate in the United States. Under the terms of the agreement, Iran has agreed to accept some temporary limits on its nuclear program in return for the lifting of the economic sanctions the international community imposed in response to that program. The Obama administration, a chief negotiator of the accord, argues that the deal will freeze and in some ways set back Iran’s march toward nuclear weapons while opening up the possibility of improving relations between the United States and the Islamic Republic, which have been bitterly hostile ever since the 1979 Iranian Revolution. The administration further contends that the agreement includes robust provisions for the international inspection of Iran’s nuclear facilities that will discourage and, if necessary, detect any Iranian cheating, triggering stiff penalties in response.
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| 2 |
ID:
133026
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| Publication |
2014.
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| Summary/Abstract |
Many studies suggest that strict balanced budget rules can restrain sovereign debt and lower sovereign borrowing costs, even if those rules are never enforced in court. Why might public officials adhere to a rule that is practically never enforced in court? Existing literature points to a legal deterrence logic in which the threat of judicial enforcement deters sovereigns from violating the rules in the first place. By contrast, we argue that balanced budget rules work by coordinating decentralized punishment of sovereigns by bond markets, rather than by posing a credible threat of judicial enforcement. Therefore, the clarity of the focal point provided by the rule, rather than the strength of its judicial enforcement mechanisms, determines its effectiveness. We develop a formal model that captures the logic of our argument, and we assess this model using data on U.S. states. We then consider implications of our argument for the impact of the balanced budget rules recently imposed on eurozone states in the Fiscal Compact Treaty.
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