Showing papers on "Golden Rule (fiscal policy) published in 1998"

Notes on 'A Code for Fiscal Stability'

Abstract: This note comments on two central issues for fiscal policy design in the United Kingdom, highlighted in the recent ‘Code for Fiscal Stability’ proposed by the new Labour government. The first concerns the merits of the so-called ‘golden rule of public sector investment’ – the proposition that, over the cycle, government borrowing should not exceed government capital formation. The second concerns the case for attempting to construct a more comprehensive balance sheet of public sector assets and liabilities, including tangible public sector assets and certain contingent claims. The two main conclusions are that the golden rule is without merit but that, subject to some important caveats, the construction of a more comprehensive government balance sheet is a worthwhile enterprise.

Social Security Policy and International Labor and Capital Mobility

Abstract: This paper studies the connection between social security policy and international factor movements within a two-country overlapping-generations model with production. Incentives for factor movements emerge because one country relies on private savings while the other country operates a social security system. The pattern of migration depends on the steady-state capital–labor ratios compared with the Golden Rule capital–labor ratios. Incentives to migrate do not vanish in the long run and one country might empty out. Capital always moves to the social-security country. Without compensation neither labor nor capital mobility represents a Pareto improvement for the economy.

La sostenibilità delle nuove forme previdenziali ovvero il sistema pensionistico tra riforme fatte e da fare

Abstract: The note is a comment on the recent pension reform in Italy passed by the Dini Government in 1995. The promise (which was made by the trade unions) to renounce real indexing of pensions appears to be a "sham" used in order to make the first yearly pension payment more generous, but which will be sociallly impossible to maintain. Equalization will be necessary and will unhinge once again the financial balance of the system because the rate of return will be pushed beyond the rate of growth of overall wages and the golden rule will be violated. As well, the individual rate of return will again be diversified by favouring those working people whose retirement period might be longer (in terms of the working period) and/or characterized by more frequent or more generous adjustments.

On golden rules, balancing acts, & finding the right size

Abstract: tn The New Golden Rule, Amitai Etzioni sets out to recruit new members to his lcommunitarian public ethic. In particular, he wants to recruit those who emphasize the importance of autonomy by articulating a version of communitarianism in which one should practice a New Golden Rule: "respect and uphold society's moral order as you would have society respect and uphold your autonomy.''l In advocating a sort of virtuous democracy, he provides criteria to check the oppression that communities can perpetrate and to argue that more than freedom, particularly economic freedom, is necessary to prevent Darwinian social struggles. Many will fairly focus on two aspects of Etzioni's book. Some will dwell on the many virtues of his balancing strategy and others will critique his overdrawn characterizations of both autonomy and conservativism. Instead of following these paths, I would like explore how Etzioni's general points about balance and the New Golden Rule might apply to business ethics. Section II describes the implications of Etzioni's argument to business and business ethics and Section III analyzes Etzioni's use of the New Golden Rule itself.

Liquidity constraints and cycles

Abstract: In this paper, we modify the model of Benhabib and Laroque in which the behaviour of non steady-state equilibria in the neighborhood of the golden rule steady state are studied, to include liquidity constraints. We observe, in an example, the appearance of new cycles.

An Overview of Welfare Reform in Italy

Abstract: Samuelson stated in 1967 that “the beauty about social insurance is that ... everyone who reaches retirement age is given benefit privileges that far exceed anything he has paid in”. Such an optimistic belief seems to have been widely shared in Italy, where until the beginning of the reform process in 1992 social security could be described as a continuous succession of highly generous and diversified promises of payment made by the state to the different categories of workers on the basis of salary earned in the final stage of working life. The pension reform introduced by the Dini government in 1995 led to the adoption of a contribution-based method of calculation, which meant a return to the forgotten “golden rule” that the financial equilibrium of pay-as-you-go systems is ensured only if the implicit yield is equal to the rate of growth of the taxable basis of social security contributions. Equilibrium would thus be safeguarded, restoring itself automatically after any accidental disruption caused by demographic or economic upheaval, and operating regardless of the capacity and will of governments and of the majorities supporting them. The great efforts made to build up sufficient consensus with respect to such radical modifications of principle were, however, accompanied by a marked caution in bringing the system into full effect. This has left the country with the problem of accelerating transition to the new mechanism of calculating contributions, applied initially only to the newly employed and pro rata to workers with less than 18 years of contributions paid in, thereby making for a very long period of transition. In such a connection, a recent proposal has suggested that the state should try to induce workers to agree freely to a reduction in their accrued pension entitlements through the public system in return for a share in the process of privatization. If government were to repay the pension debt “below par”, this would allow for greater savings on future expenditure by using part of the revenues of privatization to pay off the pension debt in advance rather than by using these sums to pay off the national debt. More radical approaches aiming at cutting back social spending, would fail to take into account the risks involved in the collapse of public trust and of the structures that have hitherto guaranteed the cohesion of Italian society and the conditions for entrepreneurial commitment. On the other hand, an unbridled bottom-up proliferation of networks of social cohesion, supplementary voluntary bodies and non-profit initiatives may involve the risk of further arbitrary action being taken in the name of income redistribution. The social market requires bottom-up action on the part of associations, but also the guarantee of state-imposed rules that are equal for all parties and of a market that is free from the distortions of competition regulated from the top. A welfare state that has too often disguised the redistribution of resources in non-transparent forms must be replaced by a transparent welfare system effecting an explicit redistribution of resources and allowing a suitably regulated market to operate without indulging continually in further forms of “correction”. This calls for the introduction of a microchip “citizen card”, able to offer characteristics both of uniformity and of fine-tuning in terms of specific conditions of age, income, assets, education, etc., so as to permit forms of selection and/or cost sharing where desirable. Some of the rights to welfare services incorporated in the “citizen card” could in fact be assigned in monetary form but restricted to specific uses. Such “social money”, conveniently based on modern technological transaction structures, could become the money of the state sector, the private sector, and the third sector of non-profit organizations and associations, enabling all parties to respond to the objective demand expressed by citizens in conditions of competition that are free of supply-side distortion.

International Capital Movements in the OG Growth Model with Intergenerational Transfer Motives

Abstract: This paper examines the long-run consequences of capital movements in an overlapping generation growth model with bequest motive. Whereas there are only terms-of-trade effects of free capital movements across countries in the traditional Solow-type growth model, there are three kinds of effects in our OG model with bequest motive: the bequest-accumulation (or decumulation) effect, the terms-of-trade effect, and golden rule effect. In the capital-importing country the bequest-reduction effect of lower interest rate disfavors the future generations while the terms-of-trade effect and the golden-rule effect of it favors them. In the capital-exporting country the bequest-accumulation effect and the terms-trade effect of higher interest rate favors future generations while the golden rule effect of it disfavors them. This present paper singled out the bequest-accumulation effect and the bequest-reduction effect of the interest rate change caused by international capital movements. This paper also showed that there is a close relationship between the welfare of future generations and their assets in the context of the OG model with bequest motive.

Notes on 'A Code for Fiscal Stability'

Abstract: This note comments on two central issues for fiscal policy design in the United Kingdom, highlighted in the recent Code for Fiscal Stability? proposed by the new Labour government. The first concerns the merits of the so-called golden rule of public sector investment? the proposition that, over the cycle, government borrowing should not exceed government capital formation. The second concerns the case for attempting to construct a more comprehensive balance sheet of public sector assets and liabilities, including tangible public sector assets and certain contingent claims. The two main conclusions are that the golden rule is without merit but that, subject to some important caveats, the construction of a more comprehensive government balance sheet is a worthwhile enterprise.

Information and Uncertainty: Power, Profits and Morality

Abstract: Many important issues in economic and political science can be adequately analyzed under the assumption that individuals are certain about the consequences of their actions, possess perfect information. Many cannot, however, and models that incorporate uncertainty and asymmetric information have become increasingly popular over the last fifty years or so.

International Capital Movements in the OG Growth Model with Integenerational Transfer Motives

Abstract: This paper examines the long consequences of capital movements in overlapping generation growth model with bequest motive. Whereas there is only terms of trade effect of free capital movements across countries in the traditional of trade effect, and golden rule effect. In the capital-importing country the bequest reduction effect of lower interest rate disfavors the future them. In the capital-exporting country the bequest-accumulation effect and the terms of trade effect of higher iinteretst rate favors future generations while the golden rule effect of it disfavors them. Present paper singled out the bequest accumulation effect and the bequest reduction effect of the interest rate change caused by international capital movement. This paper also showed that there is close relationship between the welfare of future generations and their assets in the context of the OG model with bequest motive.