Time series related to fiscal and external deficits are commonly subjected to stationarity and cointegration tests to assess if the deficits are sustainable. Such tests are incapable of rejecting ...sustainability. The intertemporal budget constraint proves to be satisfied if either the debt series or the revenue and with-interest spending series are integrated of
arbitrarily high order, i.e., stationary after differencing arbitrarily often. Revenues and spending do not have to be cointegrated. Rejections of low-order difference-stationarity and of cointegration are thus consistent with the intertemporal budget constraint. Error-correction-type policy reaction functions are suggested as more promising for understanding deficit problems.
Flows of US immigrants are concentrated at the extremes of the skill distribution. We develop a dynamic political economy model consistent with this observation. Individuals care about wages and the ...welfare of their children. Skill types are complementary in production. Voter support for immigration requires that the children of median-voter natives and of immigrants have sufficiently dissimilar skills. We estimate intergenerational transition matrices for skills, as measured by education, and find support for immigration at high and low skills, but not in the middle. In a version with guest worker programs, voters prefer high-skilled immigrants but low-skilled guest workers.
How do governments react to the accumulation of debt? Do they take corrective measures, or do they let the debt grow? Whereas standard time series tests cannot reject a unit root in the U. S. ...debt-GDP ratio, this paper provides evidence of corrective action: the U. S. primary surplus is an increasing function of the debt-GDP ratio. The debt-GDP ratio displays mean-reversion if one controls for war-time spending and for cyclical fluctuations. The positive response of the primary surplus to changes in debt also shows that U. S. fiscal policy is satisfying an intertemporal budget constraint.
How do governments react to the accumulation of debt? Do they take corrective measures, or do they let the debt grow? Whereas standard time series tests cannot reject a unit root in the U. S. ...debt-GDP ratio, this paper provides evidence of corrective action: the U. S. primary surplus is an increasing function of the debt-GDP ratio. The debt-GDP ratio displays mean-reversion if one controls for war-time spending and for cyclical fluctuations. The positive response of the primary surplus to changes in debt also shows that U. S. fiscal policy is satisfying an intertemporal budget constraint.
The transversality condition on government debt requires a zero limit of discounted future debt. The paper shows that in a stochastic economy, the relevant discount rate depends on the probability ...distribution of future debt over states of nature. Discount rates on future government debt, spending, and taxes are generally not related to the rates of return on government debt. The correct choice of discount rates is important, because debt discounted at the safe interest rate may well diverge to infinity under sustainable policies. This result raises questions about some recent empirical papers testing the sustainability of U.S. fiscal policy. (Printed by permission of the publisher.)
Risk-sharing implications of alternative fiscal policies are compared in a stochastic production economy with overlapping generations. Ex ante efficiency is shown to be achievable with optimal ...transfers, regardless of distributional concerns. For CRRA preferences, stylized real-world policies (notably safe debt and safe pensions) are found inefficient in the direction of imposing not enough productivity risk on retirees and too much on future generations. Safe transfers can be rationalized as efficient if preferences display age-increasing risk aversion, such as habit formation. The ubiquity of safe transfers suggests that governments treat the young as more risk tolerant than older cohorts.
•Comment on “The American Recovery and Reinvestment Act: Solely A Government Jobs Program?” by Conley and Dupor.•Key implication that ARRA funds to U.S. states created about 5 jobs/year per ...$1M.•Estimates suggest 35% of ARRA funds to U.S. states was spent, 65% saved.•ARRA changed U.S. fiscal federalism by nationalizing crisis-related state deficits.
Calculation of a Population Externality Bohn, Henning; Stuart, Charles
American economic journal. Economic policy,
05/2015, Letnik:
7, Številka:
2
Journal Article
Recenzirano
Odprti dostop
It is known that when people generate externalities, a birth also generates an externality and efficiency requires a Pigou tax/subsidy on having children. The size of the externality from a birth is ...important for studying policy. We calculate the size of this "population externality" in a specific case: we consider a maintained hypothesis that greenhouse gas emissions are a serious problem and assume government reacts by optimally restricting emissions. Calculated population externalities are large under many assumptions.
The rapidly growing federal government debt has become a concern for policy makers and the public. Yet the U. S. government has seemingly unbounded access to credit at low interest rates. ...Historically, Treasury yields have been below the growth rate of the economy. The paper examines the ramifications of debt financing at low interest rates. Given the short maturity of U.S. public debt - over $2.5 trillion maturing within a year -investor expectations are critical. Excessive debts justify reasonable doubts about solvency and monetary stability and thus undermine a financing strategy built on the perception that U.S. debt is safe.
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