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Measuring compliance with the Golden Rule

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  • Marc Robinson
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    Abstract

    The golden rule of public finance is based upon the notion that intergenerational equity requires that the cost of public expenditures be spread over time in a manner that reflects the intertemporal distribution of the benefits generated by those expenditures. This is often translated into a rule that the budget be structurally balanced in accrual accounting terms. This article considers the form of accrual accounting that is most suited to the task of measuring the consistency of fiscal policy with the golden rule. It recommends a combination of the real capital maintenance approach (also known as ‘current purchasing power accounting’) and annuity depreciation. Such an approach differs from ‘current cost accounting’, which has dominated public sector models of accrual accounting in recent years. The meaning of balance-sheet measures is also considered, and it is concluded that the golden rule is more appropriately expressed as an accrual balanced budget requirement than as a requirement for the maintenance of constant net worth.

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    File URL: http://www.ifs.org.uk/fs/articles/robinson_nov98.pdf
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    Bibliographic Info

    Article provided by Institute for Fiscal Studies in its journal Fiscal Studies.

    Volume (Year): 19 (1998)
    Issue (Month): 4 (November)
    Pages: 447-462

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    Handle: RePEc:ifs:fistud:v:19:y:1998:i:4:p:447-462

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    1. Boskin, Michael J, 1982. "Federal Government Deficits: Some Myths and Realities," American Economic Review, American Economic Association, vol. 72(2), pages 296-303, May.
    2. Feldstein, Martin S, 1976. "Perceived Wealth in Bonds and Social Security: A Comment," Journal of Political Economy, University of Chicago Press, vol. 84(2), pages 331-36, April.
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    Cited by:
    1. Kellermann, Kersten, 2007. "Debt financing of public investment: On a popular misinterpretation of "the golden rule of public sector borrowing"," European Journal of Political Economy, Elsevier, vol. 23(4), pages 1088-1104, December.
    2. Marc Robinson, 1999. "Accrual Financial Reporting In the Australian Public Sector: An Economic Perspective," School of Economics and Finance Discussion Papers and Working Papers Series 065, School of Economics and Finance, Queensland University of Technology.
    3. Marc Robinson, 2000. "Accrual Financial Reporting and Australian Fiscal Policy," School of Economics and Finance Discussion Papers and Working Papers Series 084, School of Economics and Finance, Queensland University of Technology.
    4. Koch, Daniel, 2011. "Wirksame Begrenzung von Staatsverschuldung auf europäischer Ebene," Wirtschaftswissenschaftliche Beiträge 114, Julius-Maximilians-Universität Würzburg, Lehrstuhl für Volkswirtschaftslehre, insbes. Wirtschaftsordnung und Sozialpolitik.
    5. Marc Robinson, 2000. "Accrual Accounting And The Public Sector," School of Economics and Finance Discussion Papers and Working Papers Series 086, School of Economics and Finance, Queensland University of Technology.

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