Philippe Michel
- 16 January 2006
- WORKING PAPER SERIES - No. 576Details
- Abstract
- Unstable government debt dynamics can typically be corrected by various fiscal instruments, like appropriate adjustments in government spending, public transfers, or taxes. This paper investigates properties of state-contingent debt targeting rules which link stabilizing budgetary adjustments around a target level of long-run debt to the state of the economy. The paper establishes that the size of steady-state debt is a key determinant of whether it is possible to find a rule of this type which can be implemented under all available fiscal instruments. Specifically, considering linear feedback rules, the paper demonstrates that there may well exist a critical level of debt beyond which this is no longer possible. From an applied perspective, this finding is of particular relevance in the context of a monetary union with decentralized fiscal policies. Depending on the level of long-run debt, there might be a conflict between a common fiscal framework which tracks deficit developments as a function of the state of the economy and the unrestricted choice of fiscal policy instruments at the national level.
- JEL Code
- E63 : Macroeconomics and Monetary Economics→Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook→Comparative or Joint Analysis of Fiscal and Monetary Policy, Stabilization, Treasury Policy
H62 : Public Economics→National Budget, Deficit, and Debt→Deficit, Surplus
- 27 August 2004
- WORKING PAPER SERIES - No. 386Details
- Abstract
- This paper surveys intergenerational altruism in neoclassical growth models. It first examines Barro's approach to intergenerational altruism, whereby successive generations are linked by recursive altruistic preferences. Individuals have an altruistic concern only for their children, who in turn also have altruistic feelings for their own children. The conditions under which the Ricardian equivalence (debt neutrality) theorem applies are specified. The effectiveness of fiscal policy is further analysed in the context of an economy populated by heterogeneous families differing with respect to their degree of intergenerational altruism. Other forms of altruism, referred to as ad hoc altruism, are also examined, along with their implications for fiscal policy.
- JEL Code
- E13 : Macroeconomics and Monetary Economics→General Aggregative Models→Neoclassical
D64 : Microeconomics→Welfare Economics→Altruism, Philanthropy
E62 : Macroeconomics and Monetary Economics→Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook→Fiscal Policy
C60 : Mathematical and Quantitative Methods→Mathematical Methods, Programming Models, Mathematical and Simulation Modeling→General
- 1 January 2003
- WORKING PAPER SERIES - No. 211Details
- Abstract
- We reconsider the well-established paradigm of a rational individual's choice of a consumption schedule, building on the idea that human beings devote resources to withstand their desire for immediate consumption, i.e. to become more patient, thereby making less remote the pleasure derived from deferred consumption. We construct an infinite-horizon model of a small open economy, in which individuals can accumulate a stock of personal capital that reduces the discount on future consumption. Personal capital captures the effect of a conumer's past experience and choices on his future utilities. Our main results are: i) when individuals are heterogenous with respect to ability to become patient all individuals exhibit the same rate of time preference in the long run; ii) effort is rewarded in the long run to the extent that individuals who need to make more effort to become patient are wealthier and enjoy a higher level of utility bin the steady state. The latter result stems from the complementarity between personal capital and deferred consumption.
- JEL Code
- E13 : Macroeconomics and Monetary Economics→General Aggregative Models→Neoclassical
- 1 November 2001
- WORKING PAPER SERIES - No. 90Details
- Abstract
- This paper investigates the relationship between the size of an unfunded public pension system and economic growth in an overlapping generation economy, in which altruistic parents finance the education of their children and leave bequests. Unlike the existing literature, we model intergenerational altruism by assuming that children's income during adulthood is an argument of parental utility. Unfunded public pensions can promote growth when families face liquidity constraints preventing them from investing optimally in the education of their children. We consider two alternative ways of financing a public pension system, either by levying social contributions in a lump-sum manner or in proportion to labour income. We find that there is no case for unfunded public pensions in economies where bequests are operative. By contrast, there exists a growth-maximising size of the public pension system in economies where bequests are not operative and individuals are sufficiently patient
- JEL Code
- H55 : Public Economics→National Government Expenditures and Related Policies→Social Security and Public Pensions
I20 : Health, Education, and Welfare→Education and Research Institutions→General
D91 : Microeconomics→Intertemporal Choice→Intertemporal Household Choice, Life Cycle Models and Saving