Showing papers on "Golden Rule (fiscal policy) published in 2020"

The golden rule of public finance under active monetary stance: endogenous setting for a developing economy

Abstract: The paper aims to verify the introduction of the golden rule of public finance under an active monetary stance for a developing economy using a dynamic stochastic general equilibrium model. Besides the two rigidities, namely the deep habit formation and Calvo-style price stickiness, the model structure incorporates real money holdings and welfare-enhancing government purchases in the utility-generating function and a modified Taylor rule. The simulation results have validated the visible crowding-out of private consumption and investment in the short run and a positive impact of the productive government spending on long-run growth, but with some important caveats. In the case of a developing economy that usually has low efficiency and high returns to public capital, the given factors prove significant in addressing the study issue. The results are robust in terms of the structure of utility-generating function, a relatively high share of liquidity-constrained households, and a degree of price stickiness. Moreover, to offset the debt accumulation as a result of increased public investment financing by persistent output growth, in the long run, the central bank should not only rely on response to the fluctuation of inflation and output but also account for a move of public debt.

Searching for the Golden Rule: A Case Study of Two White Novice Teachers’ Beliefs and Experiences of Respect in Urban Schools:

Abstract: Student respect toward teachers is traditionally considered in terms of behavior or authority. Yet, because of cultural differences and historic oppression of marginalized students in schools, not ...

Böhm-Bawerk and Hicks modernized

Abstract: The paper offers a modernized BA¶hm-Bawerkian approach to capital theory. The Wicksell effect turns out to be a measure for the degree of vertical distribution of labor. I show that a marginal rise in the rate of interest reduces the (modernized) period of production. A ‘generalized golden rule of accumulation’ is one result of our approach. Based on these results I define a coefficient of intertemporal substitution (CIS). As opposed to the traditional elasticity of substitution between labor and capital, the CIS is also well defined for negative real rates of interest. This is important in the twenty-first century, since we observe a strong overhang of private savings over private investments (secular stagnation).

The Role of Fiscal Rules in Relation with the Green Economy

Abstract: To achieve the necessary green transition in the EU, additional public investments by Member States will need to be mobilised throughout the next decade. In light of the macroeconomic environment of very low interest rates, this calls for a reform of the EU fiscal framework. The paper discusses three approaches for a reform of the fiscal rules to better reflect the need for higher (debt-financed) green public investment: (1) an exemption clause for green public investment; (2) the implementation of a green golden rule; (3) a country-specific benchmark share of government expenditures dedicated to green public investment recommended by the European Commission.

Natural Interest Rate and Money Interest Rates

Abstract: The long lasting period of declining interest rates raises the question, whether the latter result from a savings glut, from a money glut, or from both. Moreover, it renewed the old question how the natural interest rate should be sensibly defined, and if it could ever fall below the growth rate, thereby causing dynamic inefficiency. The present article contributes to this debate on a pure theoretical base, leaving the empirical issue for other research. In particular, I briefly discuss Böhm-Bawerk’s three causes for the existence of an interest rate in a private barter economy. I argue that the natural interest rate remains a meaningful concept even in an economy with both a public sector and money. From a welfare economic view, it is also preferable above the so-called golden rule, provided the interest rate does not fall below the growth rate. Although the natural interest rate could well get negative by excess saving in principle, this is normally prevented when durable goods like land or precious metals are available for storing private wealth. On the other hand, issuing credit money tends to push the interest rate below its natural level, even in the long run. In order to prevent this, one could either replace it by neutral helicopter money or return to a gold currency.

Optimal Intergenerational Transfers: Public Education and Pensions

Abstract: In presence of imperfections in education loan market, the standard policy response of intervening solely on education front, funded through taxes and transfers, necessarily hurts the initial working population. The literature suggests compensating them via pay-as-you-go pensions as a possible solution. But for various reasons sustainability of PAYG pensions is under serious doubt. We carry out the optimal policy exercise of a utilitarian government in a dynamically efficient economy with pension and education support obeying the Pareto criterion. We find that expansion of one instrument along with the other emerges as the optimal response, however, once the complete market level of education is achieved, the optimal policy suggests phasing pensions out. Eventually, government leads the economy to an equilibrium with zero pension and the Golden Rule level of education. This is achieved by exploiting only market opportunities without relying on other factors including human capital externalities, general equilibrium effects or sociopolitical factors.

Taxation of capital income in overlapping generations economies

Abstract: Whether capital income should be taxed in overlapping generations economies is vividly discussed. It is shown that intergenerational lump‐sum taxes cannot implement the Golden Rule allocation when agents have private information on their earnings potential. Hence, the seminal Atkinson–Stiglitz result that optimal income taxation pre‐empts any role for indirect taxation cannot be interpreted to imply that capital income taxation (affecting intertemporal relative prices) should not be taxed. Specifically, capital income should unambiguously be taxed in small open economies, and the optimal tax rate depends inversely on the elasticity of total savings to disposable income and the after‐tax rate of return.

New life for an old framework: redesigning the European Union's expenditure and golden fiscal rules

Abstract: In the context of the review of the EU economic governance framework, this study recommends a multi-year ahead expenditure rule anchored in an appropriate public debt target, augmented with an asymmetric golden rule that provides extra fiscal space only in times of a recession. An improved governance framework should strengthen national fiscal councils and include a European fiscal council, while financial sanctions should be replaced with instruments related to surveillance, positive incentives, market discipline and increased political cost of noncompliance.

“Kicking the Can Down the Road” Deferring Fiscal Adjustment as a Premise for Italian Budgetary Populism

Abstract: The populist aim of rebuilding the state on the true will of the sovereign people cannot succeed without a specific constitutional approach towards public budgeting. The budget, in fact, is a tool enabling governments to meet people’s needs, thus bringing about a different degree of economic and social rights protection. Populist coalitions tend to oppose strict balanced budget rules insofar as they are used to override the putative popular will to found a new social order. In Italy, budget constraints, as enshrined into Articles 81, 97 and 119 of the Constitution under the government of Mario Monti, are perceived as an irrational set of rigid rules imposed by foreign countries and supranational organizations with no democratic legitimacy. The legal resentment against “external constraints”, however, is not just a feature of self-proclaimed populist cabinets such as the first Conte government, but has been shared by several recent cabinets, led by Mr Berlusconi and Mr Renzi. This resentment kept together both right- and left-wing parties, which are keen on pursuing short-sighted economic policies, aimed at steering spending to please single and often contradictory popular interests with no regard for their financial and social effects. This phenomenon triggered a substantive change of the constitutional framework: parliamentary debate has been swept away by the executive branch, the functioning of the fiscal council has been put to an indefinite rest, and derogation from a balanced budget has become the rule rather than the exception. At present, only the Constitutional Court appears to stand up to counter a trend on the basis of which legislative discretion by the ruling majority is raised to the rank of an intangible constitutional rule.

The Golden Rule of Capital Accumulation with Workers Remittances

Abstract: This paper studies the impact of workers remittances on capital accumulation. We consider an overlapping-generations economy in which labor is endogenous and education is paid by parents. Children can migrate to another country and altruistically send remittances to family. In the recipient country, remittances reduce labor supply, domestic savings and capital accumulation with a country-specific impact on the gap between the competitive long-run equilibrium and the optimum. Appropriate taxes and subsidies allow a government to decentralize the optimum. We calibrate the model for 30 recipient countries to quantify the impact of remittances and the policy recommendation.

Vorschläge zur Reform der europäischen Fiskalregeln und Economic Governance

Abstract: Debt-to-GDP ratios are set to rise significantly all over the world as a result of the coronavirus crisis. This will pose a huge challenge for the EU's member states and in particular the euro area countries, because of the strict fiscal rules that apply to them. In a consultation process that began earlier this year, the European Commission is inviting proposals for reforms to the rules. - The IMK advocates a reform focused on appropriate fiscal rules that promote short-term macroeconomic stabilisation and the long-term modernisation of the public capital stock, while still keeping the sustainability of public debt in mind. - We propose an expenditure rule for non-cyclical, non-investment expenditure coupled with a Golden Rule for public investment. As a pragmatic solution, the permissible debt-to-GDP ratio should be increased to 90%, while escape clauses should apply during times of crisis. The proposed rules should replace the EU's current fiscal rules. - The Macroeconomic Imbalance Procedure should also be reformed at the same time. As a key part of such a reform, we advocate the establishment of a Macroeconomic Dialogue in order to ensure compliance with the reformed rules and consistency of the national strategies.

Growth maximizing fiscal rule targets in india

Abstract: The objective of this paper is to obtain the growth optimizing public debt to GDP ratio (d*), based on estimated output elasticity (α) of public sector capital under the golden rule of budgetary de...

Are Government Bonds Net Wealth or a Liability? ---Optimal Debt and Taxes in an OLG Model with Uninsurable Income Risk

Abstract: The rapidly growing national debt in the U.S. since the 1970s has alarmed and intrigued the academic world. Consequently, the concept of dynamic (in)efficiency in an overlapping generations (OLG) world and the importance of the heterogeneous-agents and incomplete markets (HAIM) hypothesis to justify a high debt-to-GDP ratio have been extensively studied. Two important consensus emerge from this literature: (i) The optimal quantity of public debt is positive—due to insufficient private liquidity to support private saving and investment (see, e.g., Barro (1974), Woodford (1990), and Aiyagari and McGrattan (1998)); (ii) the optimal capital tax is positive—because of precautionary saving and the consequent failure of the modified golden rule (see, e.g., Aiyagari (1995)). But these two consensus views are seldom derived jointly in the same model, so the dynamic relationship between optimal debt and optimal taxation remains unclear in HAIM models, especially considering that the optimal quantity of debt must be judged by the golden-rule saving rate and any debt must be financed by future taxes. We use a primal Ramsey approach to analytically characterize optimal debt and tax policy in an OLG-HAIM model. We show that since precautionary saving and oversaving are not necessarily the same thing, they have different policy implications—the Ramsey planner opts to issue bonds to crowd out private savings if and only if a competitive equilibrium is dynamically inefficient regardless of precautionary savings. In other words, optimal debt can be negative even if households cannot insure themselves against idiosyncratic risk under borrowing constraints. The sign and magnitude of the optimal quantity of debt in turn dictate the sign and magnitude of optimal taxes as well as the priority order of tax tools such as a labor tax vs. a capital tax.

Modeling the impact of public debt on economic growth in Ukraine

Abstract: The study considers modeling approaches to determine the relationship between the level of public debt and economic growth. Empirical evidence for the positive, neutral, and negative correlation between the indicators arrive in a nonlinear function in the form of inverted U-curve, whose theoretical argumentation is associated with the implementation of the golden rule of public finance. To verify the empirical evidence on the example of Ukraine’s economy, the author provides a scenario assessment based on the constructed econometric model of fiscal-monetary interaction. The results of modeling confirm the existence of a relationship that corresponds to a second-order polynomial trend. The maximum level of public debt, above which the GDP rate declines, is 63.8%, and the critical level of public debt, at which the rate of economic growth changes to negative, is 87.4%. As the development of Ukraine’s economy is approaching the upper limit of the determined functional entry, to accelerate growth, it is necessary to focus the limited resource of public debt to finance large-scale infrastructure projects with a high capital return.

The Golden Rule Under Uncertainty

Abstract: As an English proverb goes, “Between the cup and lip a morsel may slip.” This chapter is devoted to the Golden Rule under uncertainty, which accompanies every concept of equilibrium (in particular, Berge equilibrium).

Reply to Obesity and aggressive prostate cancer and the golden rule: Do not do to others what you do not want done to yourself

Abstract: 2321 Cancer May 15, 2020 until 11 years of follow-up (ie, level I evidence showing that the effect of PSA screening increases over time), we would not expect the 2012 USPSTF recommendations to have affected mortality over our study period from 2010 to 2015. Therefore, longer term follow-up will be needed to evaluate and make conclusions about survival outcomes in response to 2012 recommendations; nonetheless, we would like to take this opportunity to again emphasize that an increase in metastatic prostate cancer does have other important public health ramifications as discussed in our report, including “greater disease morbidity (e.g. metastatic bone pain, skeletal related events) and ... greater treatment-related toxicity—most notably from lifelong hormonal therapy—and higher overall health care costs.” We also strongly agree with Takahashi’s comments supporting the importance of shared decision making, as outlined by the updated 2018 USPSTF PSA screening recommendations. Our Surveillance, Epidemiology, and End Results–based study (noting that the Surveillance, Epidemiology, and End Results database remains the definitive source of population-based incidence data within the United States) along with, we believe, the editorial comment by Joshi and Filson was meant not to contradict or criticize these 2018 recommendations but rather to assess the population-based effects of the 2012 USPSTF grade D PSA screening recommendations in hopes of offering new data that might serve to enrich individual patient-physician discussions and support knowledgeable shared decision making for the complex topic of PSA screening in the future.

Reply to Obesity and aggressive prostate cancer and the golden rule: Do not do to others what you do not want done to yourself.

Abstract: We appreciate the responses to our editorial comment from Steven P. Lehrer and Takeshi Takahashi. The increasing prevalence of obesity is certainly a public health crisis, and Lehrer raises a question about 4. Laurent V, Guerard A, Mazerolles C, et al. Periprostatic adipocytes act as a driving force for prostate cancer progression in obesity. Nat Commun. 2016;7:10230. 5. Vidal AC, Howard LE, Moreira DM, Castro-Santamaria R, Andriole GL Jr, Freedland SJ. Obesity increases the risk for high-grade prostate cancer: results from the REDUCE study. Cancer Epidemiol Biomarkers Prev. 2014;23:2936-2942. 6. Banez LL, Hamilton RJ, Partin AW, et al. Obesity-related plasma hemodilution and PSA concentration among men with prostate cancer. JAMA. 2007;298:2275-2280. 7. Flegal KM, Carroll MD, Kit BK, Ogden CL. Prevalence of obesity and trends in the distribution of body mass index among US adults, 19992010. JAMA. 2012;307:491-497. 8. Flegal KM, Kruszon-Moran D, Carroll MD, Fryar CD, Ogden CL. Trends in obesity among adults in the United States, 2005 to 2014. JAMA. 2016;315:2284-2291. 9. Moyer VA; U.S. Preventive Services Task Force. Screening for prostate cancer: U.S. Preventive Services Task Force recommendation statement. Ann Intern Med. 2012;157:120-134. 10. Schroder FH, Hugosson J, Roobol MJ, et al. Screening and prostate cancer mortality: results of the European Randomised Study of Screening for Prostate Cancer (ERSPC) at 13 years of follow-up. Lancet. 2014;384:2027-2035. 11. Grossman DC, Curry SJ, Owens DK, et al. Screening for prostate cancer: US Preventive Services Task Force recommendation statement. JAMA. 2018;319:1901-1913. 12. Siegel RL, Miller KD, Jemal A. Cancer statistics, 2019. CA Cancer J Clin. 2019;69:7-34. 13. Jemal A, Fedewa SA, Ma J, et al. Prostate cancer incidence and PSA testing patterns in relation to USPSTF screening recommendations. JAMA. 2015;314:2054-2061. doi:10.1001/jama.2015.14905 14. Jemal A, Ma J, Siegel R, Fedewa S, Brawley O, Ward EM. Prostate cancer incidence rates 2 years after the US Preventive Services Task Force recommendations against screening. JAMA Oncol. 2016;2:1657-1660. doi:10.1001/jamao ncol.2016.2667 15. Joshi SS, Filson CP. Long-term consequences of the USPSTF grade D recommendation for prostate-specific antigen screening. Cancer. 2020;126.

Передумови корпоратизації та тенденції розвитку підприємств оборонно-промислового комплексу України

Abstract: The article assesses the current state of the defense industry of Ukraine. The indicators of activity are analyzed, the main tendencies of development of the enterprises of SC “Ukroboronprom” are defined. The key directions, reforming of Ukroboronprom, directions of increase of efficiency of activity of subjects of managing of public sector of economy are allocated. To understand the main trends and patterns of development of enterprises of Ukroboronprom, the main indicators of financial and economic activity using the method of quantitative and qualitative comparison based on the “golden rule of enterprise economics” are considered. The study found that the enterprises of Ukroboronprom are characterized by a high level of depreciation of fixed assets of the Concern's enterprises and unstable dynamics of profitability. At the same time, the declining dynamics of profitability and the growth of financial dependence leads to non-compliance with the “golden rule of economics”. According to the analysis, the company's borrowings are formed at the expense of current liabilities and collateral, which is evidence of a rather risky financing structure. This situation is typical for the current state of Ukroboronprom's enterprises, as all producers suffer from a lack of funds. As the analysis showed, there is no effective development strategy at the researched enterprises of Ukroboronprom, the financial planning is mainly carried out at the current level. According to the results of the triage analysis, conditional groups of companies were created in Ukroboronprom: for development, rehabilitation and subordination. The concept of reforming Ukroboronprom considers the process of corporatization of the concern as a basis for transformation, which should ensure the activities of Ukroboronprom, in accordance with OECD best practices. Ukroboronprom has started the process of restructuring defense enterprises managed by the Concern. These are enterprises that will be reorganized or transferred to the management of other public authorities based on the results of the triage analysis. This decision was made by the Concern based on the results of a triage analysis approved by the Concern's Supervisory Board. To implement the corporatization of SC “Ukroboronprom” is created as part of a special fund of the State Budget of Ukraine Trust State Fund for Development of Defense and Industrial Complex of Ukraine. However, the issues concerning the mechanism of financing the development of defense industry enterprises and the institutionalization of the process of corporatization of Ukroboronprom remain unresolved.

Optimal Fiscal Policies under Market Failures

Abstract: The aggregate capital stock in a nation can be overaccumulated for many different reasons. This paper studies which policy or policy mix is more effective in achieving the socially optimal (golden rule) level of aggregate capital stock in an infinite-horizon heterogeneous-agents incomplete-markets economy where capital is over-accumulated for two distinct reasons: (i) precautionary savings and (ii) production externalities. By solving the Ramsey problem analytically along the entire transitional path, we show that public debt and capital taxation play very distinct roles in dealing with the overaccumulation problem. The Ramsey planner opts neither to use a capital tax to correct the overaccumulation problem if it is caused solely by precautionary saving---regardless of the feasibility of public debt---nor use debt (financed by consumption tax) to correct the overaccumulation problem if it is caused solely by pollution---regardless of the feasibility of a capital tax. The key is that the modified golden rule has two margins: an intratemporal margin pertaining to the marginal product of capital (MPK) and an intertemporal margin pertaining to the time discount rate. To achieve the MGR, the Ramsey planner needs to equate not only the private MPK with the social MPK but also the interest rate with the time discount rate---neither of which is equalized in a competitive equilibrium. Yet public debt and a capital tax are each effective only in calibrating one of the two margins, respectively, but not both.

Static Case of the Golden Rule

Abstract: In this chapter, the concept of Berge equilibrium is introduced as a mathematical model of the Golden Rule. This concept was suggested by the Russian mathematician K. Vaisman in 1994. The Berge–Pareto equilibrium is formalized and sufficient conditions for the existence of such an equilibrium are established. As an application, the existence in the class of mixed strategies is proved.