Showing papers on "Golden Rule (fiscal policy) published in 1991"

Optimal pension funding with demographic instability and endogenous returns on investment

Abstract: This paper tries to explore some optimal funding policies for pension systems in a general equilibrium setting where funding affects returns on investment and wages through its impact on capital formation. This is done in the context of irregular demographic evolutions such as those expected in developed countries for the next century. Particular attention is given to the intergenerational welfare criterion which is used for designing optimal policies. It appears that funding receives low justification with a welfare criterion which assumes a high substitutability between consumptions of successive cohorts, implying a low concern for intergenerational equity. Funding is highly justified in the opposite case where a high level of consumption for some cohorts is not considered as a compensation for low consumption by others. However the optimal patterns of transfers and savings which are found in this latter case are not straightforward. Some simpler funding rules are explored in the last section of this paper, which show that non-optimal funding may imply, on the contrary, a high level of inequality between subsequent generations.

Socialist economic growth and political investment cycles

Abstract: Socialist economic growth in China and Eastern Europe has long been characterized by investment hunger, drives toward expansion, and cyclical fluctuation of investment rates. For decades, relatively high growth rates - often accompanied by a shortage of consumption goods - have typically been achieved at the consumers' expense. Treating social planners as self-interested bureaucrats, the author offers a positive model to help understand the norms of socialist economic growth. This model demonstrates: (a) how rapid capital accumulation tends to serve the social planners' own interests; (b) why investment hunger is an inevitable consequence of social planners' rational choices; and (c) when a drive toward expansion can cause a permanent shortage of consumption goods. Through numerical examples and empirical tests, the author provides a framework within which to analyze political investment cycles in a socialist economy. In China, he finds that high investment rates have often been linked to leftist political regimes and low or moderate investment rates with rightist political regimes.