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Economic and Politico-Economic Equivalence of Fiscal Policies

  • Dirk Niepelt

    (SCG; U o Bern; IIES, SU; CEPR)

  • Martin Gonzalez-Eiras

    (Universidad de San Andres)

We consider intergenerational transfer policies that are equivalent in terms of the allocation they support, in particular pay-as-you-go financed policies on one hand and policies with explicit government debt on the other. We analyze the conditions under which political decision makers are indifferent between such "economically equivalent" policies, i.e., the conditions under which a policy constitutes a politico-economic equilibrium if an economically equivalent policy does. We apply our findings to results in the recent literature on politico-economic equilibria with social security. Our results imply that many other fiscal policies beyond the pure social security policies considered in those papers support politico-economic equilibria as well. We also discuss the implications of our results for social security reform.

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Paper provided by Society for Economic Dynamics in its series 2008 Meeting Papers with number 631.

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Date of creation: 2008
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Handle: RePEc:red:sed008:631
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  1. Barro, Robert J, 1979. "On the Determination of the Public Debt," Journal of Political Economy, University of Chicago Press, vol. 87(5), pages 940-71, October.
  2. Fernando Broner & Alberto Martin & Jaume Ventura, 2010. "Sovereign Risk and Secondary Markets," American Economic Review, American Economic Association, vol. 100(4), pages 1523-55, September.
  3. Zheng Song & Kjetil Storesletten & Fabrizio Zilibotti, 2007. "Rotten parents and disciplined children: a politico-economic theory of public expenditure and debt," IEW - Working Papers 325, Institute for Empirical Research in Economics - University of Zurich.
  4. Niepelt, Dirk, 2004. "Social Security Reform: Economics and Politics," Seminar Papers 732, Stockholm University, Institute for International Economic Studies.
  5. Ramon Marimon & Javier Díaz-Giménez & Giorgia Giovannetti & Pedro Teles, 2007. "Nominal Debt as a Burden on Monetary Policy," NBER Working Papers 13677, National Bureau of Economic Research, Inc.
  6. Gonzalez-Eiras, Marti­n & Niepelt, Dirk, 2008. "The future of social security," Journal of Monetary Economics, Elsevier, vol. 55(2), pages 197-218, March.
  7. Ghiglino, Christian & Shell, Karl, 2000. "The Economic Effects of Restrictions on Government Budget Deficits," Journal of Economic Theory, Elsevier, vol. 94(1), pages 106-137, September.
  8. Feldstein, Martin & Liebman, Jeffrey B., 2002. "Social security," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 4, chapter 32, pages 2245-2324 Elsevier.
  9. Niepelt, Dirk, 2014. "Debt maturity without commitment," Journal of Monetary Economics, Elsevier, vol. 68(S), pages S37-S54.
  10. Martin Gonzalez-Eiras, 2011. "Social security as Markov equilibrium in OLG models: a note," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 14(3), pages 549-552, July.
  11. Lorenzo Forni, 2005. "Social Security as Markov Equilibrium in OLG Models," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 8(1), pages 178-194, January.
  12. Thomas F. Cooley & Jorge Soares, 1999. "A Positive Theory of Social Security Based on Reputation," Journal of Political Economy, University of Chicago Press, vol. 107(1), pages 135-160, February.
  13. Mas-Colell, Andreu & Whinston, Michael D. & Green, Jerry R., 1995. "Microeconomic Theory," OUP Catalogue, Oxford University Press, number 9780195102680, March.
  14. Barro, Robert J., 1974. "Are Government Bonds Net Wealth?," Scholarly Articles 3451399, Harvard University Department of Economics.
  15. Marco Bassetto & Narayana Kocherlakota, 2010. "On the Irrelevance of Government Debt When Taxes are Distortionary," Levine's Working Paper Archive 506439000000000295, David K. Levine.
  16. Dirk Niepelt, 2009. "Sovereign Debt Maturity without Commitment," 2009 Meeting Papers 231, Society for Economic Dynamics.
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