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Showing papers on "Golden Rule (fiscal policy) published in 2008"


Journal ArticleDOI
TL;DR: In this article, the authors analyze an overlapping generations model in which pollution arises, in an accumulative way, from production and show that the presence of pollution makes the economy more likely to be dynamically inecient.
Abstract: We analyze an overlapping generations model in which pollution arises, in an accumulative way, from production. Households do not care directly about the environment, however pollution makes them incur health costs when they are elderly. We show that the presence of pollution makes the economy more likely to be dynamically ine.cient. For these cases we analyze two kinds of tax scheme: one based on production taxes and the other based on capital and wage taxes. We show how to design both schemes in order to put the economy into the golden rule allocation. We also show that under the production tax scheme young agents pay less taxes (or receive more transfers) than under the capital-wage tax system. The ederly population is indi.erent in regard to the two tax systems. Thus the production tax scheme is superior in an electoral context.

70 citations


Posted Content
TL;DR: The Golden Rule of capital accumulation in a Chakraborty-type economy, i.e. a two-period OLG economy where longevity is endogenous, is derived and it is shown that the capital per worker maximizing steady-state consumption per head is inferior to the Golden Rule capital level prevailing under exogenous longevity.
Abstract: This note derives the Golden Rule of capital accumulation in a Chakraborty-type economy, i.e. a two-period OLG economy where longevity is endogenous. It is shown that the capital per worker maximizing steady-state consumption per head is inferior to the Golden Rule capital level prevailing under exogenous longevity. We characterize also the Lifetime Golden Rule, that is, the capital per worker maximizing steady-state expected lifetime consumption per head, and show that this tends to exceed the standard Golden Rule capital level.

62 citations


Journal ArticleDOI
TL;DR: In this article, a vector autoregressive (VAR) model was used to estimate the effect of public investment on the Eurozone's economic performance, and it was shown that public investment is a significant determinant of output, but to a lesser extent than public capital.
Abstract: This paper addresses the issue of whether and by how much public investment or public capital can increase GDP. In comparison with the literature on the subject, we apply many different methodologies to answer these questions. A vector autoregressive (VAR) model (for France, Italy, Germany, the UK and the USA), a panel composed of 6 European countries (Austria, Belgium, France, Germany, Italy and the Netherlands) and a regional panel (French regions) are estimated. Public investment is shown to be a significant determinant of output; this is also true for public capital but to a lesser extent than public investment with a VAR methodology. The size of the estimated coefficient is also more realistic than those obtained in the literature. This empirical result confirms that the focus of some economists on safeguarding the level of public investment is not misplaced. The debate on the introduction of a ‘golden rule of public finance’ in the European Monetary Union is legitimate in this respect.

37 citations


01 Jan 2008
TL;DR: In this paper, the authors analyze an overlapping generations model in which pollution arises, in an accumulative way, from production and show that the presence of pollution means that the economy is more likely to be dynamically inefficient.
Abstract: We analyze an overlapping generations model in which pollution arises, in an accumulatively way, from production. Householders do not care directly about the environment, but pollution leads them to incur health costs when they are elderly. We show that the presence of pollution means that the economy more likely to be dynamically inefficient. For these cases we analyze two kinds of tax scheme: one based on production taxes and the other based on capital and wage taxes. We show how to design both schemes to put the economy into the golden rule allocation. We also show that under the production tax scheme young and elderly agents pay less taxes (or receive more transfers) than under the production tax system.

28 citations


Journal ArticleDOI
TL;DR: In this paper, the authors compare growth and welfare effects of various budget rules within an endogenous growth model with productive public capital, utility enhancing public consumption and public debt, and find that a fixed deficit regime does not affect the long run growth rate compared to a balanced budget while the growth rate is increased by a golden rule.
Abstract: In this paper, we compare growth and welfare effects of various budget rules within an endogenous growth model with productive public capital, utility enhancing public consumption and public debt. We find that a fixed deficit regime does not affect the long run growth rate compared to a balanced budget while the growth rate is increased by a golden rule. Welfare effects are ambiguous. Simulations indicate that economies populated by households who have a strong tendency to smooth consumption should adhere to a balanced budget rather than a golden rule or a fixed deficit rule from a welfare point of view.

28 citations


Journal ArticleDOI
TL;DR: P Phelps as mentioned in this paper developed a natural rate model in a non-monetary, structuralist direction distinct from Friedman's monetarism and from New Classical economics, analyzing the natural rate of unemployment as a function of the real structure of the economy: real sectoral demands, factor supplies, technology, taxes, subsidies, tariffs and real interest and exchange rates.
Abstract: Edmund Phelps, winner of the 2006 Nobel Prize in Economics, has been a central figure in the development of macroeconomics since his 1961 article ‘The Golden Rule of Accumulation’ on optimal economic growth. His 1967–68 critique of the stability of the Phillips curve trade-off, together with Friedman (1968), led to the expectations-augmented Phillips curve and the natural rate hypothesis. His work on the choice-theoretic microeconomic foundations of wage, price, and employment dynamics under imperfect information, changed how economists do macroeconomics. Phelps subsequently developed natural rate models in a non-monetary, structuralist direction distinct from Friedman's monetarism and from New Classical economics, analyzing the natural rate of unemployment as a function of the real structure of the economy: real sectoral demands, factor supplies, technology, taxes, subsidies, tariffs, and real interest and exchange rates.

13 citations


Journal ArticleDOI
TL;DR: The principle is already embodied in India's Law of Karma as well as in the West's "Golden Rule" as discussed by the authors : "Self-Archive Unto Others as You Would Have Them Self-Archived Unto You".
Abstract: India is peculiarly positioned to help herself while helping the entire planet as well. India needs to adopt a national OA self-archiving mandate for all of its research institutions and funders. The principle is simple, it is already embodied in India’s Law of Karma as well as in the West’s ‘Golden Rule’: ‘Self-Archive Unto Others As You Would Have Them Self-Archive Unto You’. If India sets the example, by officially adopting and implementing this rule, India’s own research access and impact will be maximised, the rest of the world will follow India’s example, and research progress worldwide will be the beneficiary.

11 citations



Posted Content
TL;DR: In this paper, the authors show the relationship between static controllability and the existence and other properties of the Nash equilibrium in a dynamic setting with rational expectations for future behavior, and show how to determine the existence of equilibrium outcomes; the conditions under which no equilibrium exists; and who will get to dominate (or who will find their policies to have become ineffective) in those equilibria.
Abstract: This paper shows the relationship between static controllability (the well-known Tinbergen golden rule), and the existence and other properties of the Nash equilibrium in a dynamic setting with rational expectations for future behavior. We show how to determine the existence of equilibrium outcomes; the conditions under which no equilibrium exists; and who will get to dominate (or who will find their policies to have become ineffective) in those equilibria, without having to compute and enumerate all the possible equilibria directly.

7 citations



Posted Content
01 Jan 2008
TL;DR: This paper showed that adopting a golden rule does not guarantee that public investment will improve economic outcomes and argued that policy-makers should prioritise the productivity of public investment rather than its level, and that only when the rate of return on public capital is greater than the cost of public borrowing, expanding public investment is benecial.
Abstract: This paper shows that adopting a golden rule does not guarantee that public investment will improve economic outcomes. Our results suggest that only when the rate of return on public capital is greater than the cost of public borrowing, expanding public investment is bene…cial. Otherwise, both macroeconomic stability and debt sustainability are compromised. As such, we argue that policy-makers should prioritise the productivity of public investment rather than its level.


Journal ArticleDOI
Jacob Neusner1
TL;DR: This article argued that the Golden Rule is inert, not active; it is inconsequential in an exact sense of the word, not weighty in secondary development; it yields nothing beyond itself and does not invite new questions or stimulate speculation about new problems.
Abstract: Rabbinic Judaism calls the Golden Rule the encompassing principle of the Torah. But when the system undertakes to generalize, it entirely ignores the Golden Rule. The faithful, this is to say, are admonished to dedicate themselves to studying the generative data of the Golden Rule. But when the system concretely invokes the Golden Rule, it does not elaborate and extend it, analyzing its implications for fresh problems. This article thus proposes that, in classical Judaism, the Golden Rule is inert, not active; it is inconsequential in an exact sense of the word, not weighty in secondary development. It yields nothing beyond itself and does not invite new questions or stimulate speculation about new problems. The Golden Rule emerges as a commonplace that the system invokes without extension and elaboration.

Posted Content
TL;DR: This paper showed that the Golden Rule of Public Finance, which allows a government to run a deficit if this deficit is devoted to public investment, leads to a lower balanced growth path in the long-run and eventually in the short-run.
Abstract: In this paper, we look for long-run and short-run effects of fiscal deficits on economic growth and welfare in a standard endogenous growth model. We show that, under very general hypotheses, the Golden Rule of Public Finance?, which allows a government to run a deficit if this deficit is devoted to public investment, leads to a lower balanced growth path in the long-run, and eventually in the short-run. Welfare effects are more difficult to assess. Our model shows that fiscal deficit rules like the Golden Rule may improve or weaken intertemporal welfare, depending on parameter values, and especially on the value of the consumption elasticity of substitution. Classification JEL?: H62, H63, E62 (This abstract was borrowed from another version of this item.)


Journal ArticleDOI
02 May 2008-Science
TL;DR: Pfaff as discussed by the authors discusses neural and genetic mechanisms that may underlie the behavior of treating others as one wishes to be treated, and proposes the Neuroscience of Fair Play (WNFP).
Abstract: The Neuroscience of Fair Play . Why We (Usually) Follow the Golden Rule. By Donald W. Pfaff . Dana Press, New York, 2007. 248 pp. $20.95. ISBN 9781932594270. Rejecting the idea of signaling circuits devoted to ethics, the author discusses neural and genetic mechanisms that may underlie the behavior of treating others as one wishes to be treated

Journal Article
TL;DR: This article showed that the Golden Rule of Public Finance, which allows a government to run a deficit if this deficit is devoted to public investment, leads to a lower balanced growth path in the long-run and eventually in the short-run.
Abstract: In this paper, we look for long-run and short-run effects of fiscal deficits on economic growth and welfare in a standard endogenous growth model. We show that, under very general hypotheses, the Golden Rule of Public Finance”, which allows a government to run a deficit if this deficit is devoted to public investment, leads to a lower balanced growth path in the long-run, and eventually in the short-run. Welfare effects are more difficult to assess. Our model shows that fiscal deficit rules like the Golden Rule may improve or weaken intertemporal welfare, depending on parameter values, and especially on the value of the consumption elasticity of substitution. Classification JEL: H62, H63, E62

Journal Article
TL;DR: In this paper, the principles of local government (LG) have been discussed and discussed in the context of the EU Charter of Local Taxation (Charter of Local Government, 2007).
Abstract: Introduction When scholars talks about local government (LG in continuation), they often point to three basic values that the structures of LG may fulfill (Sharpe, 1973; Stewart, Greenwood, 1995): a) autonomy; because the existence of LG prevents over-concentration of political power and allows for different political choices in different localities, b) democracy; because LG encourages the active involvement of citizens in self-governance; c) effectiveness; because LG is efficient structure for delivery of services tailored to varying needs of localities. With decentralization, decision makers are closer to the results of their decisions, which is helpful in predicting the effects of decisions to be made and in turn supports effective allocation of resources. LG enables a better match of policies with local conditions and preferences. This supports effectiveness both objectively and subjectively (policies are closer to voters' preferences) and variation in solutions promotes innovation and diffusion of positive examples. LG is a feature of all EU states, despite many differences between them. Its importance has been strengthened by the adoption of the subsidiary principle in the Maastricht Treaty and by the EU Charter of LG. Criteria for Expenditure and Revenue Assignment The principles discussed below are among the basic foundations of the fiscal federalism model. As Rattso (2002) notes, model is based on four key assumptions: a) LG is mostly responsible for the delivery of public goods; b) the base for local finance is provided by local taxes (those who pay also benefit), c) there is considerable social mobility; d) in the case of local services, the catchments area is close to the area of administrative jurisdiction, i.e., spillover effects are minimal. The main principles of a decentralized system of public finance recommended by fiscal federalism theory are (Musgrave, 1957; Oates, 1972; King, 1984): a) the division of functions between central and LG is based on the subsidiary principle, which involves a considerable amount of fiscal and functional decentralization. (LG spending to national GDP, although this measure creates several methodological and data problems), b) The allocation of functions takes into account the specific territorial organization. If the structure is to diversified, with many, small units, the functional decentralization cannot be broad. Small units will not be able to perform functions effectively, c) The "golden rule" of the balanced budget (Damon, 2002) is enforced by regulations. In short, the rule states that current spending should be financed exclusively from current revenues, while capital investment expenditures are financed from capital receipts, d) The system of local finance is transparent for citizens and LG has an autonomy to form the structure of local expenditures. The most general classification of resources consists of three major categories: a) Own revenues of LG (revenues allocated to LG unconditionally and for an undefined period and that LG has at least some discretion to decide upon these categories of revenue, b) transfers from the central budget in form of grants, c) borrowed resources, d) shared revenues. (1) The model of local finance should conform to the following criteria: a) vertical allocation of resources should reflect the allocation of functions, b) a large proportion of local revenues should come from own sources, because this supports accountability, stimulates councillors and increases citizens interest in local activities, c) equalization system which ensures that each unit is able to provide at least a minimal set of standard services (Buchanan et al., 1999). Principles of Local Taxation There are various candidates for local taxes, and several criteria to help us choose appropriate mix for the country. Some of them are identical with requirements for good taxes in general, but others are specific to LG. …

Posted Content
TL;DR: This article showed that adopting a golden rule does not guarantee that public investment will improve economic outcomes and argued that policy-makers should prioritise the productivity of public investment rather than its level, and that only when the rate of return on public capital is greater than the cost of public borrowing, expanding public investment is beneficial.
Abstract: This paper shows that adopting a golden rule does not guarantee that public investment will improve economic outcomes. Our results suggest that only when the rate of return on public capital is greater than the cost of public borrowing, expandingpublic investment is beneficial. Otherwise, both macroeconomic stability and debt sustainability are compromised. As such, we argue that policy-makers should prioritise the productivity of public investment rather than its level.


Posted Content
TL;DR: In this article, the effects of public old-age pensions on longevity choice and capital accumulation were analyzed using an overlapping generations model with endogenous but uncertain longevity, and it was shown that, when agents are not altruistic, increases in old age pensions are longevity-neutral for golden rule economies and longevitydecreasing if interest rates exceed population growth.
Abstract: Using an overlapping generations model with endogenous but uncertain longevity, this article analyzes the effects of public old-age pensions on longevity choice and capital accumulation. When agents are not altruistic, increases in old-age pensions are longevity-neutral for golden rule economies and longevity-decreasing if interest rates exceed population growth, and saving effects are strictly negative. When agents are altruistic, longevity is independent of old-age pensions regardless of the interest rate-population growth relation. On the other hand, the longevity effect of a price subsidy on longevity extending expenditures or an advance in longevity extending technology is positive.(JEL H5, J1)

Book ChapterDOI
13 Mar 2008

Posted Content
TL;DR: In this paper, a general model of intertemporal consumption choice is developed, following Samuelsons 1958 OLG-approach, and the efficiency properties of the model are discussed with and without the introduction of durable goods, of productive capital, and fiat money.
Abstract: A general model of intertemporal consumption choice is developed, following Samuelsons 1958 OLG-approach. The efficiency properties of the model are discussed with and without the introduction of durable goods, of productive capital, and fiat money. It is shown that the criterion of golden rule efficiency is not reasonable, if transition periods are taken into account. Moreover, the introduction of an infinitely lived institution, which grows at the steady state rate, will definitely prevent the interest from falling beyond the growt h rate. Hence, the main arguments against intertemporal efficiency of the market mechanism in OLG-models turn out to be invalid.

Posted Content
TL;DR: In this paper, the authors extended the neoclassical model for economic growth to the general case of economic growth, which can be represented as the sum of cyclical and growth components.
Abstract: In this paper, the neoclassical model is extended for the general case of economic growth, which can be represented as the sum of cyclical and growth components. If the general formulation of the golden rule of capital accumulation is satisfied (the savings rate is equal to the capital income share), the production function takes the form of the Cobb-Douglas function. This function governs the economic growth both when the economy is growing along an equilibrium path and when the economy is departing from it (the correlation coefficient between U.S. GDP changes and calculated ones is equal to 0.91). When economy fluctuations are averaged along an equilibrium path, the Cobb-Douglas function reduces to condition, which is similar to Harrod-Domar one. The level of technology may be reasonably considered to express in terms of the wage level.