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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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Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA

Web page: http://www.EconomicDynamics.org/society.htm
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  1. Tabellini, Guido, 1990. "A Positive Theory of Social Security," CEPR Discussion Papers 394, C.E.P.R. Discussion Papers.
  2. Marco Battaglini & Steve Coate, 2006. "A Dynamic Theory of Public Spending, Taxation and Debt," Levine's Bibliography 122247000000001094, UCLA Department of Economics.
  3. 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.
  4. Gonzalez-Eiras, Martin & Niepelt, Dirk, 2007. "The Future of Social Security," CEPR Discussion Papers 6245, C.E.P.R. Discussion Papers.
  5. Brooks,Robin & Razin,Assaf (ed.), 2005. "Social Security Reform," Cambridge Books, Cambridge University Press, number 9780521844956, November.
  6. 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.
  7. Martín Gonzalez Eiras, 2010. "Social Security as Markov Equilibrium in OLG Models: A Note," Working Papers 105, Universidad de San Andres, Departamento de Economia, revised Sep 2010.
  8. Barro, Robert J., 1974. "Are Government Bonds Net Wealth?," Scholarly Articles 3451399, Harvard University Department of Economics.
  9. Mas-Colell, Andreu & Whinston, Michael D. & Green, Jerry R., 1995. "Microeconomic Theory," OUP Catalogue, Oxford University Press, number 9780195102680, December.
  10. 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.
  11. Song, Zheng Michael & Storesletten, Kjetil & Zilibotti, Fabrizio, 2012. "Rotten Parents and Disciplined Children: A Politico-Economic Theory of Public Expenditure and Debt," CEPR Discussion Papers 8738, C.E.P.R. Discussion Papers.
  12. Niepelt, Dirk, 2008. "Debt Maturity without Commitment," CEPR Discussion Papers 7093, C.E.P.R. Discussion Papers.
  13. Bassetto, Marco & Kocherlakota, Narayana, 2004. "On the irrelevance of government debt when taxes are distortionary," Journal of Monetary Economics, Elsevier, vol. 51(2), pages 299-304, March.
  14. 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.
  15. 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.
  16. Michele Boldrin & Aldo Rustichini, 2000. "Political Equilibria with Social Security," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 3(1), pages 41-78, January.
  17. Niepelt, Dirk, 2004. "Social Security Reform: Economics and Politics," Seminar Papers 732, Stockholm University, Institute for International Economic Studies.
  18. 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.
  19. Dirk Niepelt, 2009. "Sovereign Debt Maturity without Commitment," 2009 Meeting Papers 231, Society for Economic Dynamics.
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