Showing papers by "Martin Feldstein published in 2002"
TL;DR: In this paper, Martin Feldstein and Horst Siebert, along with a number of distinguished contributors, discuss the challenges facing Social Security reform in the aging societies of Europe and highlight the problems that the European pension reform process faces and how it differs from that of the United States.
Abstract: Social Security in the United States and in Europe is at a critical juncture. Through essays assembled in "Social Security Pension Reform in Europe", Martin Feldstein and Horst Siebert, along with a number of distinguished contributors, discuss the challenges facing Social Security reform in the aging societies of Europe. A remarkable range of European nations - Germany, France, Finland, the Netherlands, Poland, Romania, Italy, Sweden, the United Kingdom and Hungary - have implemented or are about to implement mixed Social Security systems that combine a traditional defined benefit of the pay-as-you-go system with an individual retirement account defined contribution of a capital-funded system. The essays here highlight the problems that the European pension reform process faces and how it differs from that of the United States. This timely volume should significantly enrich the debate on pension reform worldwide.
175 citations
TL;DR: In this paper, the theoretical and empirical issues dealing with Social Security pensions are discussed, and the transition to investment-based systems is discussed, analyzing the effect on the present value of consumption of such a transition and considering such issues as distributional effects and risk associated with such systems.
Abstract: This chapter reviews the theoretical and empirical issues dealing with Social Security pensions. The first part of the chapter discusses pure pay-as-you-go plans. It considers the effects of introducing such a plan on the present value of consumption, the optimal level of benefits in such plans, and the empirical research on the effects of pay-as-you-go pension systems on labor supply and saving. The second part of the chapter discusses the transition to investment-based systems, analyzing the effect on the present value of consumption of such a transition and considering such issues as the distributional effects and risk associated with such systems.
149 citations
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TL;DR: Theory of public goods (W.H. Oakland), incentive and public goods allocation (J.-J. Laffont), economics of the local public sector (D.L. Inman), income maintenance and social insurance (A.B. Atkinson), cost-benefit analysis (J.E. Dreze, N. Stern), Pareto efficient and optimal taxation and the new new welfare economics.
Abstract: Theory of public goods (W.H. Oakland). Incentives and the allocation of public goods (J.-J. Laffont). The economics of the local public sector (D.L. Rubinfeld). Markets, government, and the "new" political economy (R. Inman). Income maintenance and social insurance (A.B. Atkinson). The theory of cost-benefit analysis (J. Dreze, N.H. Stern). Pareto efficient and optimal taxation and the new new welfare economics (J.E. Stiglitz). Tax incidence (L. Kotlikoff, L. Summers).
116 citations
TL;DR: The authors show that appropriately designed investment-based social security reforms can effectively reduce the long-term burden of an aging society on future taxpayers, increase the expected future income of retirees, and mitigate poverty rates among the elderly.
Abstract: Social security is the largest and perhaps the most popular program run by the federal government Given the projected increase in both individual life expectancy and sheer number of retirees, however, the current system faces an eventual overload Alternative proposals have emerged, ranging from reductions in future benefits to a rise in taxrevenue to various forms of investment-based personal retirement accounts As this volume suggests, the distributional consequences of these proposals are substantially different and may disproportionately affect those groups who depend on social security to avoid poverty in old age Together, these studies persuasively show that appropriately designed investment-based social security reforms can effectively reduce the long-term burden of an aging society on future taxpayers, increase the expected future income of retirees, and mitigate poverty rates among the elderly
103 citations
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TL;DR: In this paper, the general case against using fiscal policy for stabilization is summarized and the argument for using a hyperexpansive' monetary policy to reduce the risk that a low rate of inflation will lead to a deflationary situation in which monetary policy becomes ineffective.
Abstract: Although there is now widespread agreement in the economics profession that discretionary counter-cyclical'fiscal policy has not contributed to economic stability and may have actually been destabilizing at particular times in the past, there is one important condition when discretionary fiscal policy can play a constructive role: in a sustained downturn when aggregate demand and interest rates are low and when prices are falling or may soon be falling. This short note begins by summarizing the general case against using fiscal policy for stabilization. It next considers the argument for using a hyperexpansive' monetary policy to reduce the risk that a low rate of inflation will lead to a deflationary situation in which monetary policy becomes ineffective. Such a policy would increase the risk of asset price bubbles and of a misaligned exchange rate. Discretionary fiscal policy provides an alternative way to stimulate the economy when aggregate demand and interest rates are low and when prices are falling or may soon be falling. A stimulus can be achieved without increasing budget deficits if the fiscal policy acts by providing an incentive for increased private spending. Specific examples for the U.S. and Japan are considered.
78 citations
TL;DR: In this paper, the authors examined the lessons to be drawn from the financial and currency crises of the late 1990s and provided the author's personal conclusions about crisis prevention and management, and the way that the crises were managed by the IMF and attempted to answer the following questions: (1) Have the crises been resolved, permitting the crisis countries to return to solid economic growth and to achieve renewed access to international capital markets? (2) Did the IMF stabilization policies resolve the crisis with as little economic pain as possible? (3) Did agreed structural reforms actually occur and, if
Abstract: This is the introductory chapter to an NBER conference volume that examined the lessons to be drawn from the financial and currency crises of the late 1990s. The paper does not attempt to summarize the specific content of that meeting but provides the author's personal conclusions about crisis prevention and management. The first part of the paper deals with policies of the emerging market economies that affect the likelihood of crises, including exchange rate regimes, capital account convertibility, foreign exchange liabilities and reserves, domestic credit structure, and financial supervision. The paper then considers policies of industrial countries that affect the risk of crises in emerging market economies, including exchange rate instability, interest rates, banking supervision, trade policy, and the provision of a lender of last resort facility. The second half of the paper deals with the way that the crises were managed by the IMF and attempts to answer the following questions: (1) Have the crises been resolved, permitting the crisis countries to return to solid economic growth and to achieve renewed access to international capital markets? (2) Did the IMF stabilization policies resolve the crisis with as little economic pain as possible? (3) Did the agreed structural reforms actually occur and, if so, were they successful? (4) How did the experience of the crisis countries affect the incentives of lenders, borrowers, and countries facing crises in the future? (5) Were the actions of the IMF politically legitimate for an international agency? (6) What were the political consequences of the crises and the policies that followed?
77 citations
TL;DR: Argentina's 35 million citizens will not be the only ones to pay a heavy price for that country's latest economic crisis as discussed by the authors, and the fallout may also radically alter economic policies and political relations both within Latin America and with the United States.
Abstract: Argentina's 35 million citizens will not be the only ones to pay a heavy price for that country's latest economic crisis. The fallout may also radically alter economic policies and political relations both within Latin America and with the United States. It is already clear that Argentina will re verse at least some of the favorable eco nomic reforms introduced by President Carlos Menem in the early l990s. Al though Menem's reforms are not respon sible for the current chaos, they are a politically convenient scapegoat. Blam ing them also provides a rationale for re nationalizing Argentine firms, erecting barriers to imports and foreign invest ment, and increasing government spending. The current crisis will weaken the prospects for the Mercosur trading arrangement among Argentina and its neighbors (Brazil, Paraguay, and Uruguay) and may kill any chance of a general Free Trade Area of the Americas. Many Argentines are already blaming their troubles on Washington, claiming that U.S. policies got them into this mess and that the United States then abandoned Argentina because, unlike Turkey, it is not of geopolitical significance. If other emerging-market governments misinterpret Argentina's experience, they too might move away from the promarket policies that hold the best promise of raising future living standards. Gaining a better understanding of the real reasons for the Argentine crisis is therefore essential. Doing so might help Argentina and other emerging countries avoid making the wrong policy choices in the future and reduce the risk of further financial crises.
72 citations
19 Sep 2002
TL;DR: In this article, the general case against using fiscal policy for stabilization is summarized and the argument for using a hyperexpansive' monetary policy to reduce the risk that a low rate of inflation will lead to a deflationary situation in which monetary policy becomes ineffective.
Abstract: Although there is now widespread agreement in the economics profession that discretionary counter-cyclical'fiscal policy has not contributed to economic stability and may have actually been destabilizing at particular times in the past, there is one important condition when discretionary fiscal policy can play a constructive role: in a sustained downturn when aggregate demand and interest rates are low and when prices are falling or may soon be falling. This short note begins by summarizing the general case against using fiscal policy for stabilization. It next considers the argument for using a hyperexpansive' monetary policy to reduce the risk that a low rate of inflation will lead to a deflationary situation in which monetary policy becomes ineffective. Such a policy would increase the risk of asset price bubbles and of a misaligned exchange rate. Discretionary fiscal policy provides an alternative way to stimulate the economy when aggregate demand and interest rates are low and when prices are falling or may soon be falling. A stimulus can be achieved without increasing budget deficits if the fiscal policy acts by providing an incentive for increased private spending. Specific examples for the U.S. and Japan are considered.
65 citations
TL;DR: In this article, the authors present several alternative social security reform options in which the projected level of benefits for every future cohort of retirees is as high as or higher than the benefits projected in current law.
Abstract: This paper presents several alternative social security reform options in which the projected level of benefits for every future cohort of retirees is as high as or higher than the benefits projected in current law. These future benefits can be achieved without any increase in the payroll tax or in other tax rates. Under each option, the Social Security Trust Fund is solvent and ends with a sustainable positive and growing balance. Each option combines the current pay-as-you-go system of defined benefits with an investment-based personal retirement account (PRA). Assets in the PRA can be bequeathed if the individual dies before normal retirement age. We also consider the option in which an individual can take all or part of his accumulated PRA balance as a lump sum at normal retirement age. The basic plan that we present in greatest detail combines a transfer to the PRA of a portion of the individual's payroll tax equal to 1.5 percent of earnings if the individual agrees to deposit an equal out-of-pocket ...
43 citations
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TL;DR: In this paper, the authors study the distributional impact of a change from the existing pay-as-you-go Social Security system to one that combines both PAYGO and investment-based elements.
Abstract: In this paper we study the distributional impact of a change from the existing pay-as-you-go Social Security system to one that combines both pay-as-you-go and investment-based elements. Such a transition can avert the large tax increases that would otherwise be necessary to maintain the level of benefits promised under current law as life expectancy increases. According to the Social Security actuaries (Board of Trustees, 1999), retaining the existing pay-as-you-go system would eventually require raising the current 12.4 percent Social Security payroll tax rate to about 19 percent to maintain the current benefit rules or cutting benefits by more than one-third in order to avoid a tax increase. In contrast, previous research showed that adding an investment-based component with savings equal to two percent of covered earnings to the existing 12.4 percent pay-as-you-go system would be sufficient to maintain the benefits promised under current rules without any increase in tax rates (Feldstein and Samwick 1997, 1998a, 1998b).
38 citations
TL;DR: The nature and content of research and teaching in public economics have changed enormously during the past three decades as discussed by the authors, and the field is more theoretically rigorous, more empirical, more focused on real policy issues, and more concerned with government spending as well as with taxation.
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TL;DR: In this article, the authors examined the lessons to be drawn from the financial and currency crises of the late 1990s and provided the author's personal conclusions about crisis prevention and management, and the way that the crises were managed by the IMF and attempted to answer the following questions: (1) Have the crises been resolved, permitting the crisis countries to return to solid economic growth and to achieve renewed access to international capital markets? (2) Did the IMF stabilization policies resolve the crisis with as little economic pain as possible? (3) Did agreed structural reforms actually occur and, if
Abstract: This is the introductory chapter to an NBER conference volume that examined the lessons to be drawn from the financial and currency crises of the late 1990s. The paper does not attempt to summarize the specific content of that meeting but provides the author's personal conclusions about crisis prevention and management. The first part of the paper deals with policies of the emerging market economies that affect the likelihood of crises, including exchange rate regimes, capital account convertibility, foreign exchange liabilities and reserves, domestic credit structure, and financial supervision. The paper then considers policies of industrial countries that affect the risk of crises in emerging market economies, including exchange rate instability, interest rates, banking supervision, trade policy, and the provision of a lender of last resort facility. The second half of the paper deals with the way that the crises were managed by the IMF and attempts to answer the following questions: (1) Have the crises been resolved, permitting the crisis countries to return to solid economic growth and to achieve renewed access to international capital markets? (2) Did the IMF stabilization policies resolve the crisis with as little economic pain as possible? (3) Did the agreed structural reforms actually occur and, if so, were they successful? (4) How did the experience of the crisis countries affect the incentives of lenders, borrowers, and countries facing crises in the future? (5) Were the actions of the IMF politically legitimate for an international agency? (6) What were the political consequences of the crises and the policies that followed?
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TL;DR: The most likely form of bequest, the pre-retirement bequest' made when employees die before normal retirement age, reduces the funds available for post-retire annuities by about 16 percent or, equivalently, requires a one-sixth increase in the Personal Retirement Account saving rate as mentioned in this paper.
Abstract: Experience in private pension plans and recent policy discussions about investment-based reforms of Social Security suggest that some form of bequest is likely to be part of any such reform that is enacted. This paper provides a first examination of the potential magnitudes of such bequests and of their effect on retirement annuities and asset accumulation. The most likely form of bequest, the preretirement bequest' made when employees die before normal retirement age, reduces the funds available for post-retirement annuities by about 16 percent or, equivalently, requires a one-sixth increase in the Personal Retirement Account saving rate to maintain the same level of post-retirement annuities. We also analyze a variety of post-retirement bequest options. The least costly option that we consider is adding a ten-year-certain' feature to the life annuity, thereby providing a bequest whenever the retiree dies before age 77. This would reduce annuities, relative to providing only preretirement bequests, by about 6 percent. The most costly option that we consider would provide a bequest equal to the remaining actuarial value of the PRA annuity at the time of death and would require reducing all annuities by about 23 percent unless the PRA saving rate is raised. We analyze the size distribution of bequests that would result under different bequest rules and consider the implications for aggregate capital accumulation.(This abstract was borrowed from another version of this item.)
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01 Jan 2002
TL;DR: In this article, Martin Feldstein and Horst Siebert, along with a number of distinguished contributors, discuss the challenges facing Social Security reform in the aging societies of Europe and highlight the problems that the European pension reform process faces and how it differs from that of the United States.
Abstract: Social Security in the United States and in Europe is at a critical juncture. Through essays assembled in "Social Security Pension Reform in Europe", Martin Feldstein and Horst Siebert, along with a number of distinguished contributors, discuss the challenges facing Social Security reform in the aging societies of Europe. A remarkable range of European nations - Germany, France, Finland, the Netherlands, Poland, Romania, Italy, Sweden, the United Kingdom and Hungary - have implemented or are about to implement mixed Social Security systems that combine a traditional defined benefit of the pay-as-you-go system with an individual retirement account defined contribution of a capital-funded system. The essays here highlight the problems that the European pension reform process faces and how it differs from that of the United States. This timely volume should significantly enrich the debate on pension reform worldwide.
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TL;DR: In this article, the general case against using fiscal policy for stabilization is summarized and the argument for using a hyperexpansive' monetary policy to reduce the risk that a low rate of inflation will lead to a deflationary situation in which monetary policy becomes ineffective.
Abstract: Although there is now widespread agreement in the economics profession that discretionary counter-cyclical'fiscal policy has not contributed to economic stability and may have actually been destabilizing at particular times in the past, there is one important condition when discretionary fiscal policy can play a constructive role: in a sustained downturn when aggregate demand and interest rates are low and when prices are falling or may soon be falling. This short note begins by summarizing the general case against using fiscal policy for stabilization. It next considers the argument for using a hyperexpansive' monetary policy to reduce the risk that a low rate of inflation will lead to a deflationary situation in which monetary policy becomes ineffective. Such a policy would increase the risk of asset price bubbles and of a misaligned exchange rate. Discretionary fiscal policy provides an alternative way to stimulate the economy when aggregate demand and interest rates are low and when prices are falling or may soon be falling. A stimulus can be achieved without increasing budget deficits if the fiscal policy acts by providing an incentive for increased private spending. Specific examples for the U.S. and Japan are considered.
01 Jan 2002
TL;DR: Siebert is known internationally as the head of the prestigious Kiel Institute of World Economics and as a professor of economics at Kiel University and is distinguished also by the breadth of his interest in the public policy issues in Europe in general and in Germany in particular as discussed by the authors.
Abstract: Horst Siebert is known internationally as the head of the prestigious Kiel Institute of World Economics and as a professor of economics at Kiel University. Professor Siebert is distinguished also by the breadth of his interest in the public policy issues in Europe in general and in Germany in particular. His comments on German policy are widely read and his position as a member of the German Council of Economic Advisers has given him an important voice in policy circles.
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TL;DR: In this article, the authors compared the tax rates in four countries, accounting for corporate, personal, and property taxes, and including national, regional, and local level taxes, for different combinations of asset, industry, source of finance, and ownership categories.
Abstract: This working paper presents Chapter 7 of a book to be published for the National Bureau of Economic Research by the University of Chicago Press. The point of the book is to compare taxes on income from capital in four countries, accounting for corporate, personal, and property taxes, and including national, regional, and local level taxes. We describe statutory tax rates and other tax rules in each country and calculate overall effective marginal tax rates for different combinations of asset, industry, source of finance, and ownership categories. This chapter compares effective tax rates in the four countries for different assets, industries, sources of finance, and ownership categories. Differences in overall effective tax rates among countries are attributed to differences in rates of inflation, actual depreciation, tax parameters, or differences in the amount of capital in each combination. For each country, we plot the effect of inflation on overall tax rates, and we plot the distribution of different effective tax rates at a given rate of inflation. We further investigate the sensitivity of results to assumptions about inflation and interest rates. Mervyn A. King Don Fullerton Department of Economics Woodrow Wilson School University of Birmingham Princeton University P.O. Box 363 Princeton, NJ 08544 Birmingham, Bl5 2TT ENGLAND (609) 452—4811 021—472—1301, ext 3427