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 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.

Longevity and companionship in an overlapping-generations model

Abstract: We derive a golden rule for the level of life-extending health care when the utility of the old depends not only their level of consumption but also on the number of old people alive. While previous work has emphasized the negative pecuniary externality from longevity, we derive the effect of the positive non-pecuniary externality of being able to consume with other members of one’s cohort.

Optimal Taxation When Consumers Have Endogenous Benchmark Levels of Consumption

Abstract: I examine optimal taxes in an overlapping generations economy in which each consumer's utility depends on consumption relative to a weighted average of consumption by others (the benchmark level of consumption) as well as on the level of the consumer's own consumption. The socially optimal balanced growth path is characterized by the Modified Golden Rule and by a condition on the intergenerational allocation of consumption in each period. A competitive economy can be induced to attain the social optimum by a lump-sum pay-as-you-go social security system and a tax on capital income.

“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.