Showing papers on "Golden Rule (fiscal policy) published in 2007"

Criteria for a good death.

Abstract: This brief paper advances the concept of a "good death," outlines ten specific criteria for a good death, and proposes a simple golden rule for optimal dying.

Dynamic controllability with overlapping targets: Or why target independence may not be good for you

Abstract: We generalize some recent results developed in static policy games with multiple players, to a dynamic context. We find that the classical theory of economic policy, static or dynamic, can be usefully applied to a strategic context of difference games: if one player satisfies the Golden Rule, then either all other players' policies are ineffective with respect to the dynamic target variables shared with that player. Or no Nash Feedback Equilibrium can exist, unless they all share target values for those variables. We extend those results to the case in which there are also nondynamic targets, to show that policy effectiveness (a Nash equilibrium) can continue to exist if some players satisfy the Golden Rule but target values differ between players in their nondynamic targets. We demonstrate the practical importance of these results by showing how policy effectiveness (a policy equilibrium) can appear or disappear with small variations in the expectations process or policy rule in a widely used model of monetary policy with the possibility of target independence.

A Golden Rule for Russia? How a Rule-Based Fiscal Policy Can Allow a Smooth Adjustment to the New Terms of Trade

Abstract: The Russian economy continues to grow strongly, buoyed by rising terms of trade, which, in turn, are supporting a boom in domestic consumption. This paper addresses the challenge that the adjustment to sustained high oil prices poses for macroeconomic management. It first examines the impact of rising terms of trade on the domestic economy, particularly with respect to exchange-rate appreciation, competitiveness and inflation. It then considers the role of monetary and fiscal policies in ensuring a smooth adjustment to the higher terms of trade. The paper argues that fiscal policy should be the primary instrument for tackling this challenge. It therefore focuses on the potential role of a fiscal rule in insulating the economy and the budget from commodity-price fluctuations, and on the management of windfall oil and gas revenues accumulated in the fiscal Stabilisation Fund.

Capital Accumulation, Mergers, and the Ramsey Golden Rule

Abstract: We take a differential game approach to model the Ramsey growth model from the standpoint of the representative firm. We identify parametric conditions such that the economy cannot reach the Ramsey golden rule, due to the presence of a stable demand-driven equilibrium. This may happen under Cournot and Bertrand behaviour, as well as social planning. We show that a wave of horizontal mergers can indeed drive the economy towards the Ramsey golden rule.

Has the golden rule of public finance made a difference in the uk

Abstract: This paper uses the SVAR methodology to investigate the effects of public investment on growth, and more specifically, the effects of the introduction of a golden rule of public finance. We extend the existing literature by estimating a model of the British economy that takes into account long run factors such as public debt accumulation. We find that in such a long run framework, public investment has a significant and permanently positive effect on GDP growth; this result runs counter to the most recent literature on the topic that was limited to a short run specification. We further find, by comparing different subsamples, that the introduction of the golden rule in 1997 strengthened the positive effect of public investment.

Spirituality in the salesperson: the impact of the golden rule and personal faith on workplace job attitudes

Abstract: Spirituality in the Salesperson: The Impact of the Golden Rule and Personal Faith on Workplace Job Attitudes. (May 2007) James Garry Smith, B.B.A., The University of Texas at Tyler; M.B.A., University of North Texas Chair of Advisory Committee: Dr. Charles M. Futrell Do salespeople who follow the Golden Rule or let their faith influence their behavior serve their customers better or like their jobs and employers more than other salespeople? The Golden Rule is a quote from Christ found in Matthew 7:12 NIV and is considered a universal ethical principle taught by all major religions. It is also a behavioral standard for many in business. A review of the sales, marketing, and organizational literatures, however, failed to uncover studies which assess the relationships of following the Golden Rule or a person’s faith or spirituality with key business outcomes. Salespeople impact the performance and perception of their firms, yet are regarded as highly unethical by the public. Therefore, an investigation of how these variables influence their behavior seems justified. A Golden Rule Disposition (GRD) is conceptualized as a higher-order personality disposition which influences the traits of agape love, forgiveness, gratitude, humility, and selflessness. Personal faith is defined as a higher order personality trait blending a desire for a personal relationship with God (the Divine or Supreme Being) with core personality influences on the behaviors of an individual.

The Golden Rule and the Economic Cycles

Abstract: The present formulation of the golden rule in the United Kingdom allows fiscal performance to be tested explicitly on an ex-post basis. However, it requires precise dating of the economic cycle, which can lead to significant controversy. Also, the need to aim for current balance or better "over the cycle" may force fiscal policy to be procyclical toward the end of cycles. Using dynamic stochastic simulations, the paper suggests that making the formulation of the golden rule forward-looking and independent of the dating of the economic cycle would reduce the risk of procyclicality and enhance macroeconomic stability.

Partisan Public Investment and Debt: The Case for Fiscal Restrictions

Abstract: The political distortions in public investment projects are investigated within a bipartisan framework. The role of scrapping and modifying projects of previous governments receives special attention. The ruling party overspends on large ideological public investment projects and accumulates too much debt to bind the hands of its successor, especially if the probability of being removed from office is large and the possibility of scrapping is not ruled out. These political distortions have implications for the appropriate format of a fiscal rule. A deficit rule, like the Stability and Growth Pact, mitigates the overspending bias in ideological investment projects and improves social welfare. The optimal second-best restriction on public debt exceeds the socially optimal level of public debt. Social welfare is boosted more by investment restrictions on ideological projects. The government then perceives a larger benefit of debt reduction. In fact, if scrapping is forbidden, optimal investment restrictions can yields the socially optimal outcome. Finally, debt and investment restrictions are not needed if investment projects only have a financial return.

Nachhaltige Finanz‐ und Investitionspolitik der Bundesländer*

Abstract: : In Germany the sustainability of fiscal policy is determined to a substantial part by the federal states (Bundeslaender). Their portion of the public debt amounts to nearly 40 percent. Econometric tests show that the fiscal policy of the federal states taken collectively is not sustainable. The requirement for fiscal sustainability is fulfilled only by two western Laender, Hesse and North-Rhine Westphalia, and one eastern Land (Saxony). Furthermore, it is shown that the constitutional “golden rule” stipulating that borrowing should not exceed investment expenditures does not ensure the solvency of the states. This holds for theoretical reasons but also because there is a lack of clarity and enforceability. Finally, it is argued that the commitment of subnational governments to sustainable public finances could be strengthened by invigorating state-level tax and expenditure autonomy.

The impact of simple fiscal rules in growth models with public goods and congestion

Abstract: In this paper we examine the implication of a simple class of fiscal rules for long-run economic growth and welfare. The Golden Rule of Public Finance that we examine is motivated by institutional arrangements in countries such as Germany and the UK. We find that rules that seek to limit government borrowing to productive investment spending have a clear justification in terms of growth and welfare when government-provided goods are otherwise excessively provided. Even in the case where it is private consumption that is excessive, the Golden Rule of Public Finance is likely to be good from a growth perspective, but the welfare effects are more ambiguous.

Has the Golden Rule of Public Finance Made a Difference in the UK

Abstract: This paper uses the SVAR methodology to investigate the effects of public investment on growth, and more specifically, the effects of the introduction of a golden rule of public finance. We extend the existing literature by estimating a model of the British economy that takes into account long run factors such as public debt accumulation. We find that in such a long run framework, public investment has a significant and permanently positive effect on GDP growth; this result runs counter to the most recent literature on the topic that was limited to a short run specification. We further find, by comparing different subsamples, that the introduction of the golden rule in 1997 strengthened the positive effect of public investment.

A New Budget Rule for Germany

Abstract: Elke Baumann and Christian Kastrop discuss the main features and shortfalls of Germany’s current fiscal framework and examine possible reforms. They analyze the shortcomings of the golden rule that has been applied in Germany since the end of the 1960s, which include the rule’s asymmetry over business cycles, its unclear specification of the cases under which it can be violated, and the weakness of the enforcement mechanism and the de facto absence of sanctions. The paper then discusses possible reforms. The authors stress that a new budget rule should allow for flexibility over the business cycle, be compatible with the Stability and Growth Pact, be enforceable and be coherent with the decentralised structure of German general government.

The Political Economy of Public Investment

Abstract: The political distortions in public investment projects are investigated within the context of a bipartisan political economy framework. The role of scrapping and modifying projects of previous governments receives special attention. The party in government has an incentive to overspend on large ideological public investment projects in order to bind the hands of its successor. This leads to a bias for excessive debt, especially if the probability of being removed from office is large. These political distortions have implications for the appropriate format of a fiscal rule. A deficit rule, like the Stability and Growth Pact, mitigates the overspending bias in ideological investment projects and improves social welfare. The optimal second-best restriction on public debt exceeds the level of public debt that would prevail under the socially optimal outcome. Social welfare may be boosted even more by appropriate investment restrictions: with a restriction on (future) investment in ideological projects, the current government perceives a large benefit of a debt reduction. However, debt and investment restrictions are not needed if investment projects only have a financial return.

Macroeconomic Policy in the UK under New Labour: The End of Boom and Bust?

Abstract: The Labour government elected in May 1997 came into office stressing that it was ‘New Labour’ and pursuing a ‘third way’. In macroeconomic terms, the emphasis was on the avoidance of ‘tax and spend’ policies and restraints on public expenditure along with the adoption of the so-called ‘golden rule’ of public finances (as discussed below). There was something akin to a disavowal of a Keynesian approach to macroeconomic policies and specifically the use of fiscal policy to help steer the economy. There was an emphasis on labour market reforms and flexibility, which would, in effect, lower the ‘non-accelerating rate of unemployment’ and thereby lower unemployment. Whereas previous Labour governments had pursued a range of industrial and regional development policies to stimulate economic growth and lower unemployment, there was a major shift from those policies to those of labour (and to some degree product) market ‘flexibility’.

Government Investment and the European Stability and Growth Pact

Abstract: Introduction and summary Since 1999, 13 countries have abandoned their national currency and joined the European Monetary Union, adopting the euro. This new currency regime posed unprecedented challenges in designing institutions that would ensure its success and stability. Particularly important to this endeavor was defining the interaction between fiscal policy and monetary policy. In the case of national currencies, large and persistent fiscal deficits frequently lead to higher levels of inflation (Sargent and Wallace, 1981: and Sargent, 1986). This possibility became an even greater concern when many countries decided to share a single currency. Under the new regime, each country would fully reap any benefits of deficit spending but could potentially force others to face the undesirable consequences of undermining the independence of the newly created European Central Bank or generating instability in the Eurobond market (Chari and Kehoe, 2004). This concern was addressed in the Maastricht Treaty of 1992, which paved the way for the monetary union, and especially in the European Stability and Growth Pact (SGP), which was adopted in 1997. The pact made permanent some of the conditions that the Maastricht Treaty required of entrants at the creation of the single currency. The cornerstone of the SGP is a cap of 3 percent on the ratio of general government deficit to gross domestic product (GDP) that each country is allowed to run in any given year. In its original form, the pact set the cap to be independent of the mix of government spending (whether transfers, recurrent expenses, investment, or interest payments), and allowed for exceptions only in case of an unusual event outside of the state's control or a severe recession. (1) From the outset, many criticized the SGP as imposing a straightjacket on fiscal authorities. In this article, we address one specific criticism: the argument in favor of special treatment for public investment (Buiter, 2003; Blanchard and Giavazzi, 2004; and Monti, 2005). The argument starts from the premise that the fiscal authorities have a bias toward projects that yield immediate gains and postpone the costs. Therefore, applying the 3 percent cap to both investment and other expenses would lead governments to neglect their historical role as providers of major infrastructure (such as roads, airports, and schools) in favor of spending that yields more immediate but less long-lasting benefits (for example, social insurance or crime prevention). According to this view, appropriate incentives could be restored if some of the costs of public investment were postponed as well. This would require more borrowing to pay for public investment than to pay for other expenses. The notion that public investment ought to be treated differently from other government expenses is far from new. In fact, the prescription that the government should only be allowed to borrow to pay for public investment is known in public finance as the "golden rule." Many national governments adopted this rule in the eighteenth and nineteenth centuries (see, for example, the quotations in Bassetto with Sargent, 2005), (2) but the rule fell out of favor at the national level in the twentieth century, and very few countries adopt it nowadays (Germany being a notable exception). By contrast, this rule well approximates the behavior of most U.S. states: Almost all of the states' constitutions provide for very strict borrowing limits, but many allow significant borrowing for public investment (National Association of State Budget Officers, 2002). In recent years, many countries have struggled to meet the strict deficit cap imposed by the SGP. When the core countries of France and Germany failed to meet it in 2002, 2003, and 2004, it became clear that the pact was unenforceable, at least in its original form. As a result, the pact was reformed in 2005. (3) This reform explicitly acknowledged the role of public investment as well as "policies to foster research and development and innovation" (European Council on the Stability and Growth Pact, 2005, article 1). …

Has the Golden Rule of Public Finance Made a difference in the UK

Abstract: This paper uses the SVAR methodology to investigate the effects of public investment on growth, and more specifically, the effects of the introduction of a golden rule of public finance. We extend the existing literature by estimating a model of the British economy that takes into account long run factors such as public debt accumulation. We find that in such a long run framework, public investment has a significant and permanently positive effect on GDP growth; this result runs counter to the most recent literature on the topic that was limited to a short run specification. We further find, by comparing different subsamples, that the introduction of the golden rule in 1997 strengthened the positive effect of public investment.

The Golden Rule and the Economic Cycles

Abstract: The present formulation of the golden rule in the United Kingdom allows fiscal performance to be tested explicitly on an ex-post basis. However, it requires precise dating of the economic cycle, which can lead to significant controversy. Also, the need to aim for current balance or better "over the cycle" may force fiscal policy to be procyclical toward the end of cycles. Using dynamic stochastic simulations, the paper suggests that making the formulation of the golden rule forward-looking and independent of the dating of the economic cycle would reduce the risk of procyclicality and enhance macroeconomic stability.

Sluggish Growth and the SGP Fiscal Rule: Model Simulations

Abstract: In the last decade, many OECD countries have experienced with budgetary rules in order to help restore or safeguard fiscal sustainability. The most prominent examples are the USA with the 1985 Balanced Budget and Emergency Deficit Control Act (Gramm- Rudman Act) which was relaxed and renamed in the 1990 Budget Enforcement Act (BEA) introducing caps on discretionary spending. The caps could be exceeded in the event of “emergencies”. In the end most of its provisions elapsed in September 2002, without being extended or replaced.4 In the United Kingdom, two fiscal rules were set out in 1997: the so-called “golden rule”, which states that over the cycle current outlays, including the consumption of fixed capital should not be financed by borrowing; and a debt rule, or “sustainability investment rule”, stipulating that over the cycle the ratio of net debt to GDP should not exceed a prudent level, defined for the time being as 40 per cent. Several other OECD countries have adopted new rules since the 1990s (e.g. New Zealand and Switzerland with its debt brake — “Schuldenbremse”)

Treating Stakeholders Fairly: The Golden Rule as a Moral Guiding Principle for Entrepreneurs

Abstract: Entrepreneurs have a unique opportunity to cultivate the moral direction and development of their organizations, precisely because those organizations are new. Towards this end, we suggest that the Golden Rule is a simple, practical heuristic for entrepreneurs seeking to establish a fair social contract with their stakeholders. Because justice is an impor tant central moral criterion in organizations, we attempt to show theo retically that the Golden Rule passes critical tests of justice, as outlined in the work of John Rawls, and can also serve as a universally relevant hypernorm which have been argued to ground all social contracts. We introduce some important contextual findings from the entrepreneurship literature in order to ground our discussion and create realistic scenari os for entrepreneurs and their stakeholders. In so doing, we present an important potential limitation of the Golden Rule in practice and sug gest how entrepreneurs might reconcile it. Ultimately, we believe that if entrepreneurs were to reflect upon their particular situation, they would have good reasons to choose to employ the Golden Rule as a part of their overall strategy for moral and economic success.

The political economy of public investment

Abstract: The political distortions in public investment projects are investigated within the context of a bipartisan political economy framework. The role of scrapping and modifying projects of previous governments receives special attention. The party in government has an incentive to overspend on large ideological public investment projects in order to bind the hands of its successor. This leads to a bias for excessive debt, especially if the probability of being removed from office is large. These political distortions have implications for the appropriate format of a fiscal rule. A deficit rule, like the Stability and Growth Pact, mitigates the overspending bias in ideological investment projects and improves social welfare. The optimal second-best restriction on public debt exceeds the level of public debt that would prevail under the socially optimal outcome. Social welfare may be boosted even more by appropriate investment restrictions: with a restriction on (future) investment in ideological projects, the current government perceives a large benefit of a debt reduction. However, debt and investment restrictions are not needed if investment projects only have a financial return.

Jenseits von Ausgabenkürzungen - Alternative Optionen zur Haushaltssanierung von Bundesländern: der Fall Berlin

Abstract: Germany’s public budgets are in distress. For several years, the “golden rule” has been broken and the deficit criterion of Maastricht has not been met. As German states have hardly any tax setting autonomy and as their revenue is mainly determined by a fiscal equalisation system, the discussion of how to solve these budgetary problems heavily concentrates on expenditure cuts. This paper analyses additional possibilities for German states to overcome fiscal imbalances. Notwithstanding the fiscal equalisation system, revenue increases occur with higher economic growth, higher tax rates, the levy of new duties and privatisation. Furthermore, public expenditures decline with economic growth and increasing wealth as fewer transfers are needed and subsidies to public services can be reduced. These aspects are discussed, simulated and calculated for the state of Berlin.

The Golden Rule

Abstract: This encyclopedia article discusses the history of the Golden Rule and selected interpretations.

Abortion, the Golden Rule, and the Indeterminacy of Potential Persons

Abstract: R.M. Hare and Harry Gensler have each argued that abortion is usually morally wrong because it violates a certain version of the golden rule. The appeal to the golden rule is intended to avoid difficult metaphysical issues such as whether or not a fetus is a person and the moral status of potential persons, any answers to which are likely to be question begging. By applying a certain version of the golden rule to the abortion issue it is hoped that we can come to some conclusion regarding the morality of abortion without dealing with such intractable questions. It also has strong intuitive appeal and is a popular device among anti-abortion activists. Some objections have been raised against this approach, but for the most part this argument has been unduly neglected. The golden rule approach can withstand the objections better than the critics realize and, properly interpreted, the golden rule presents a formidable challenge to the moral acceptability of abortion. Nevertheless, this golden rule argument fails. After considering a version of the golden rule argument against abortion and defending it against the most common objections, we will see why it ultimately fails. There are two important reasons why we should reconsider the golden rule approach to the abortion issue even though it ultimately fails. First, many of the objections raised against the golden rule approach to abortion are aimed at the golden rule itself and its adequacy in assessing or critiquing moral judgments. But the golden rule itself is not the problem and should not be rejected. The problem is with applying the golden rule to a potential person from the perspective of the actual person it is to become. The identity of the potential person is indeterminate. It is potentially a range of different actual future persons. This indeterminacy of potential persons is the second reason why it is important to re-examine the golden rule argument against abortion.