Objectives, Targets and Instruments for Crown Financial Policy
AbstractCrown financial policy is concerned with how the government manages the Crown’s assets and liabilities. The recently established New Zealand Superannuation Fund, which is projected to grow to around 45% of GDP over the next few decades, highlights that Crown financial policy is likely to become an important economic policy tool with potential to have a significant impact on New Zealand economic welfare. The policy framework of objectives, targets and instruments is adopted as a basis for organising the theory literature relating to Crown financial policy. Applying this framework, seven distinct policy objectives are identified as potentially relevant to the future development of policy. Applying qualitative assessment criteria, it is concluded that four of the seven objectives should be the main factors that inform the design of alternative policy options. The four objectives relate to minimising distortionary taxation, time-consistency of policy, agency costs of government, and downside efficiency risks. The three objectives considered less relevant relate to policy neutrality, missing markets and risk management services. The four main objectives imply a range of targets could be adopted for the Crown balance sheet, some of which would be conflicting. The objectives of minimising distortionary taxation suggests targeting the minimum risk portfolio by building up financial assets and net worth whereas the objective of minimising the agency cost of government suggests placing an upper bound on government operating surpluses and limiting the build up of financial assets. Time-consistency and agency cost objectives tend to conflict because the former suggests the level of debt should be kept low whereas the latter suggests high debt levels.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by New Zealand Treasury in its series Treasury Working Paper Series with number 03/21.
Date of creation: Sep 2003
Date of revision:
Contact details of provider:
Postal: New Zealand Treasury, PO Box 3724, Wellington, New Zealand
Phone: +64-4-472 2733
Fax: +64-4-473 0982
Web page: http://www.treasury.govt.nz
More information through EDIRC
Agency cost; bounded rationality; Crown balance sheet; distortionary taxation; imperfect and incomplete capital markets; public debt management; Ricardian equivalence; time-inconsistency;
Find related papers by JEL classification:
- H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
- H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
This paper has been announced in the following NEP Reports:
- NEP-PBE-2003-09-28 (Public Economics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Kenneth A. Froot & Jeremy C. Stein, 1996.
"Risk Management, Capital Budgeting and Capital Structure Policy for Financial Institutions: An Integrated Approach,"
Center for Financial Institutions Working Papers, Wharton School Center for Financial Institutions, University of Pennsylvania
96-28, Wharton School Center for Financial Institutions, University of Pennsylvania.
- Froot, Kenneth A. & Stein, Jeremy C., 1998. "Risk management, capital budgeting, and capital structure policy for financial institutions: an integrated approach," Journal of Financial Economics, Elsevier, Elsevier, vol. 47(1), pages 55-82, January.
- Kenneth A. Froot & Jeremy C. Stein, 1996. "Risk Management, Capital Budgeting and Capital Structure Policy for Financial Institutions: An Integrated Approach," NBER Working Papers 5403, National Bureau of Economic Research, Inc.
- Bengt Holmstrom & Jean Tirole, 1996.
"Private and Public Supply of Liquidity,"
NBER Working Papers
5817, National Bureau of Economic Research, Inc.
- Bengt Holmstrom & Jean Tirole, 1998. "Private and Public Supply of Liquidity," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 106(1), pages 1-40, February.
- Holmstrom, B & Tirole, J, 1996. "Private and Public Supply of Liquidity," Working papers, Massachusetts Institute of Technology (MIT), Department of Economics 96-21, Massachusetts Institute of Technology (MIT), Department of Economics.
- Alberto Alesina & Roberto Perotti, 1994. "The Political Economy of Budget Deficits," NBER Working Papers 4637, National Bureau of Economic Research, Inc.
- Barro, Robert J, 1974.
"Are Government Bonds Net Wealth?,"
Journal of Political Economy, University of Chicago Press,
University of Chicago Press, vol. 82(6), pages 1095-1117, Nov.-Dec..
- Sala-I-Martin, X. & Barro, R.J., 1991.
"Public Finance in Models of Economic Growth,"
Papers, Yale - Economic Growth Center
640, Yale - Economic Growth Center.
- Robert J. Barro & Xavier Sala-i-Martin, 1990. "Public Finance in Models of Economic Growth," NBER Working Papers 3362, National Bureau of Economic Research, Inc.
- Barro, Robert J. & Sala-i-Martin, Xavier, 1992. "Public Finance in Models of Economic Growth," CEPR Discussion Papers, C.E.P.R. Discussion Papers 630, C.E.P.R. Discussion Papers.
- Arthur Grimes, 2001. "Crown Financial Asset Management: Objectives and Practice," Treasury Working Paper Series, New Zealand Treasury 01/12, New Zealand Treasury.
- Robert E. Lucas Jr. & Nancy L. Stokey, 1982.
"Optimal Fiscal and Monetary Policy in an Economy Without Capital,"
Discussion Papers, Northwestern University, Center for Mathematical Studies in Economics and Management Science
532, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Lucas, Robert Jr. & Stokey, Nancy L., 1983. "Optimal fiscal and monetary policy in an economy without capital," Journal of Monetary Economics, Elsevier, Elsevier, vol. 12(1), pages 55-93.
- Missale, Alessandro, 1999. "Public Debt Management," OUP Catalogue, Oxford University Press, Oxford University Press, number 9780198290858, October.
- Peled, Dan, 1985. "Stochastic inflation and government provision of indexed bonds," Journal of Monetary Economics, Elsevier, Elsevier, vol. 15(3), pages 291-308, May.
- George-Marios Angeletos, 2002. "Fiscal Policy With Noncontingent Debt And The Optimal Maturity Structure," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 117(3), pages 1105-1131, August.
- Missale, Alessandro, 1997. " Managing the Public Debt: The Optimal Taxation Approach," Journal of Economic Surveys, Wiley Blackwell, Wiley Blackwell, vol. 11(3), pages 235-65, September.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Web and Publishing Team, The Treasury).
If references are entirely missing, you can add them using this form.