Alternatives for Raising Living Standards
Given the fundamental goal of raising living standards in the longer term, much attention is paid to policies that can be expected to increase national saving. With respect to private saving, the mechanism is tax reform – a lower tax on interest income. The basic problem with this approach is that, for a given size of government, some other tax or transfer must be adjusted to finance the interest-tax cut. This fact may make it difficult to ensure that those with only labour income will share in the spoils. An alternative is to concentrate on public saving. Ultimately, deficit reduction makes possible lower taxes and/or higher transfer payments across the board. This reasoning suggests that debt reduction may be the more equitable government initiative. But there are other options such as investing in human capital and altering the population growth rate through immigration policy. The latter option is pursued in this paper. According to the standard neoclassical growth model, a lower population growth rate raises steady-state living standards, but things are more complicated in an optimization-based overlapping-generations context. This paper extends Blanchard’s constantplanning- horizon model of disjoint agents to allow for retirement, a subset of the population that remains liquidity constrained, and various taxes and transfers – in a small open-economy setting. Tax reform, debt reduction and population growth policies are compared in an internally consistent manner. For each policy, both the immediate and steady-state effects are derived, and the present value of the entire time path for consumption between these two end-points is also analyzed (for all three policy initiatives). A calibrated version of the model is used to identify policy combinations that can deliver long-term gain without short-term pain, and without problems for the hand-to-mouth subset of the population.
|Date of creation:||Aug 1999|
|Date of revision:|
|Contact details of provider:|| Postal: 1280 Main Street West, Hamilton, Ontario, L8S 4M4|
Phone: (905) 525-9140 ext. 22765
Fax: (905) 521-8232
Web page: http://www.economics.mcmaster.ca/
More information through EDIRC
References listed on IDEAS
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.:
- Tiff Macklem & David Rose & Robert Tetlow, 1995.
"GOVERNMENT DEBT AND DEFICITS IN CANADA: A Macro Simulation Analysis,"
- Tiff Macklem & David Rose & Robert Tetlow, . "GOVERNMENT DEBT AND DEFICITS IN CANADA: A Macro Simulation Analysis," Staff Working Papers 95-4, Bank of Canada.
- Søren Nielsen, 1994. "Social security and foreign indebtedness in a small open economy," Open Economies Review, Springer, vol. 5(1), pages 47-63, March.
- Diamond, Peter A., 1980. "An alternative to steady-state comparisons," Economics Letters, Elsevier, vol. 5(1), pages 7-9.
When requesting a correction, please mention this item's handle: RePEc:mcm:deptwp:1999-08. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.