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.

The Political Economy of Balanced-Budget Rules

Abstract: The paper provides an explanation to the adoption of balanced-budget rules by politicians, instead of golden rules. In a model that includes voters' preferences that are skewed by the history of the budget structure, and fiscal rules on the budget, we show that incumbents favor a distorted budget allocation, and use debt strategically. The inclusion of a golden rule of public finance is compared with that of a balanced-budget rule. Due to the presence of habits, we show that the conditions for the prevalence of a balanced-budget rule are easier to fulfil than those pertaining to a golden rule.

Fiscal policy within a common currency area – growth implications in the light of neoclassical theory

Abstract: We examine the long-run impact of fiscal policy on economic growth under the conditions of an economic and monetary union (EMU). The analysis is based on the neoclassical growth model of a small (in economic terms) open economy in an EMU. The core assumptions are perfect capital mobility, which results in identical interest rates across the EMU, and perfect mobility of goods, which leads to the convergence of price levels. The model is based on standard neoclassical assumptions, i.e., the output is determined by the Cobb-Douglas production function with a Harrodneutral technical progress and constant returns to scale, capital and labor receive their marginal products, etc. We show that a unique long-run equilibrium exists and is characterized by the socalled natural rate of growth. The necessary and sufficient conditions of global asymptotic stability form a system of three non-trivial inequalities. We argue that in modern economies, these conditions are satisfied, except perhaps for very short periods of time. Furthermore, we show that the golden rules of fiscal policy have the form of an alternative optimal policy that crucially depends on the relation between the real interest rate and the natural rate of growth and on the relations between five other autonomous parameters.

The Golden Rule and its Consequences: A Practical and Effective Solution for World Peace

Abstract: Peace is something desirable and requested by all nations in the world. What makes it necessary to address this issue is the critical, undesirable state of the current world that, despite statements by international organizations with the theme of peace, reveals growing conflict and war and irreversible damages caused by them. This article seeks to provide a practical and effective solution for achieving peace in the global community. To this end, it introduces the golden rule (treating others as you wish others to treat you) as a rule common to all nations. This rule which has a special place in moral philosophy and has been the common denominator of all religions and schools of thought from ancient times until the present provides peace throughout the world through its mechanism. With the use of analytical methods, this study examines and explains it. The results show that the most effective and powerful way to achieve world peace is the adherence to the golden rule.