Golden Rule (fiscal policy)

About: Golden Rule (fiscal policy) is a research topic. Over the lifetime, 661 publications have been published within this topic receiving 9789 citations.

Fiscal Federalism and the Stability and Growth Pact: A Difficult Union

Abstract: Balassone and Franco note that while the budget rules that frame EMU apply to national States, several EMU member nations are already organised on a federal basis and others, pressed by political and economic needs, have started to enact reforms aimed at increasing the degree of decentralisation. They highlight several critical areas in the interaction of fiscal decentralisation and the Stability and Growth Pact. Balassone and Franco point to the reduced flexibility of the European approach compared with solutions adopted in federally structured countries and to the asymmetry between the responsibilities laid on national and local governments by European rules (compliance with the rules depends on the conduct of all levels of government, but de facto it is the central government that is answerable to the EU and that must pay the price for non-compliance). This calls for strict controls over local governments to prevent free-riding. The authors examine alternative solutions to deal with these problems, such as the mechanical extension of the Stability and Growth Pact, the introduction of a golden rule for decentralised governments, also in the form of a market for deficit permits, and the use of reserve funds. Finally, Balassone and Franco analyse how the issue has been addressed in Italy through the introduction of the Domestic Stability Pact and stress the need for further significant refinements of these domestic rules.

Debt, Growth and Budgetary Regimes

Abstract: Within the Barro (1990) model of productive public services, but with the inclusion of public debt, we derive and characterize on the balanced growth path, a set of welfare maximizing fiscal rules under two budgetary regimes - one with only the standard dynamic government budget constraint, and the other involving the golden rule of public finance. We demonstrate analytically that the optimal fiscal policy differs in the two budgetary regimes considered. We also analyse two cases within the second regime: one, where the ratio of current spending to tax revenues is parametrically given, and another, where this ratio is optimally chosen by the government.

The jerusalem game: cultural evolution of the golden rule

Abstract: It has often been noted that most of the major world religions espouse a version of the "golden rule." In this paper we consider the cultural evolution of such a doctrine, where the responsibility to act altruistically towards others applies universally, not just to other members of the same society. Using a game-theoretical model, we find that societies over a critical size benefit from adopting a mode of universal altruism. These "golden-rule societies" must justify violence against outsiders by formulating exceptions to this universal rule. For smaller groups, it is more efficient to adopt a rule that simply requires cooperation within the group. Data from the ethnographic record supports a correlation between group size and societal norms of universal cooperation. Our results provide an explanation for the prevalence of the golden rule among contemporary cultures. We find that universal altruism arises due to cultural selection for greater ingroup bias, and is a natural byproduct of the emergence of large-scale societies.