Fiscal transparency, political parties, and debt in OECD countries

Many believe and argue that fiscal, or budgetary, transparency has large, positive effects on fiscal performance. However, the evidence linking transparency and fiscal policy outcomes is less compelling. To analyze the effects of fiscal transparency on public debt accumulation, we present a career-concerns model with political parties. This allows us to integrate as implications of a single model three hitherto-separate results in the literature on deficit and debt accumulation: that transparency decreases debt accumulation (at least by reducing an electoral cycle in deficits), that right-wing governments (at least for strategic reasons) tend to have higher deficits than left-wing governments, and that increasing political polarization increases debt accumulation. To test the predictions of the model, we construct a replicable index of fiscal transparency on 19-country OECD data. Simultaneous estimates of debt and transparency strongly confirm that a higher degree of fiscal transparency is associated with lower public debt and deficits, independent of controls for explanatory variables from other approaches.     

Demographic structure and capital accumulation

This paper develops an overlapping-generations (OLG) model to analyze the consequences of demographic structure changes induced by an exogenous shift in the birth rate. We first show that a finite growth rate of the population that maximizes long-run capital per capita exists. Then, we examine the theoretical properties of this growth rate by showing that: (i) it corresponds to the demographic structure such that the average ages of capital holders and workers are equal; (ii) it is associated to an efficient steady state; (iii) it increases with compulsory transfers from younger to older generations. Finally, we explain why standard OLG models do not exhibit such a growth rate.     

Debt and deficit fluctuations and the structure of bond markets

We analyse the implications of optimal taxation for the stochastic behaviour of debt. We show that when a government pursues an optimal fiscal policy under complete markets, the value of debt has the same or less persistence than other variables in the economy and it declines in response to shocks that cause the deficit to increase. By contrast, under incomplete markets debt shows more persistence than other variables and it increases in response to shocks that cause a higher deficit. Data for US government debt reveals diametrically opposite results from those of complete markets and is much more supportive of bond market incompleteness.     

Social security and risk sharing

In this paper we identify conditions under which the introduction of a pay-as-you-go social security system is ex ante Pareto-improving in a stochastic OLG economy with capital accumulation and land. We argue that these conditions are consistent with realistic specifications of the parameters of the economy. In our model financial markets are complete and competitive equilibria interim Pareto efficient. Therefore, a welfare improvement can only be obtained if agents? welfare is evaluated ex ante, and arises from an improvement in intergenerational risk sharing. We also examine the optimal size of a given social security system as well as its optimal reform.     

The golden rule of public finance and the composition of government expenditures: a growth and welfare analysis

This paper employs an endogenous growth model to study the growth and welfare effects of the golden rule of public finance. Two versions are compared, whereby government deficits are restricted for the use of public investments. It is shown that the growth effect of the golden rule depends on what kind of expenditure is adjusted to meet debt obligations. A transition from a balanced budget to a golden rule is performed to study welfare. The results indicate that a budget rule with detrimental growth effects can still have positive welfare implications, and vice versa, if the composition of government expenditures and transitional dynamics are taken into account.     

A NOTE ON “A ONE‐SECTOR NEOCLASSICAL GROWTH MODEL WITH ENDOGENOUS RETIREMENT”: EXISTENCE OF MULTIPLE STEADY STATES*

This note extends Matsuyama's 0–1 endogenous retirement choice model to the framework with continuous endogenous retirement choice to study the consumption‐saving decision and capital accumulation in an overlapping generation model. The conditions for the existence of multiple steady states have been derived. In contrast to the 0 or 1 labour choice, the partial retirement may be a stable steady state under the continuous endogenous retirement choice in the second period. And this implies that partial retirement may be a stable optimal choice. Also, we find that the retirement choice depends on the initial capital stock when there are multiple steady states.     

Elderly labor supply and fertility decisions in aging-population economies

With a longer life expectancy, individuals who plan to work when they are old may increase the number of their children. Therefore, when individuals choose the time of retirement, the fertility rate may not necessarily decline but even rise.