William K. Reilly
- Published in print:
- 2006
- Published Online:
- May 2006
- ISBN:
- 9780195168006
- eISBN:
- 9780199783458
- Item type:
- chapter
- Publisher:
- Oxford University Press
- DOI:
- 10.1093/0195168003.003.0010
- Subject:
- Economics and Finance, Development, Growth, and Environmental
This chapter examines debt-for-nature swaps and their potential for offsetting sovereign debt. Debt-for-nature swaps originated in the 1980s as a way of preserving natural areas in the developing ...
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This chapter examines debt-for-nature swaps and their potential for offsetting sovereign debt. Debt-for-nature swaps originated in the 1980s as a way of preserving natural areas in the developing world while at the same time reducing the external debt of the host country. The win-win nature of this type of transaction created many potential applications, and the US Congress and other national legislatures soon passed legislation enabling billions of dollars worth of swaps to take place. However, that potential was never realized. Legislative mandates were not funded, developing countries became suspicious of swaps as they believed they posed a threat to their sovereignty, and an improvement in debt markets reduced the attractiveness of swap economics. It is argued that although swaps are not a panacea for either debt reduction or environmental protection, they offer a concrete tool to promote both ends, and tremendous potential for swaps still exists.Less
This chapter examines debt-for-nature swaps and their potential for offsetting sovereign debt. Debt-for-nature swaps originated in the 1980s as a way of preserving natural areas in the developing world while at the same time reducing the external debt of the host country. The win-win nature of this type of transaction created many potential applications, and the US Congress and other national legislatures soon passed legislation enabling billions of dollars worth of swaps to take place. However, that potential was never realized. Legislative mandates were not funded, developing countries became suspicious of swaps as they believed they posed a threat to their sovereignty, and an improvement in debt markets reduced the attractiveness of swap economics. It is argued that although swaps are not a panacea for either debt reduction or environmental protection, they offer a concrete tool to promote both ends, and tremendous potential for swaps still exists.
Thomas J. Sargent
- Published in print:
- 2013
- Published Online:
- October 2017
- ISBN:
- 9780691158709
- eISBN:
- 9781400847648
- Item type:
- chapter
- Publisher:
- Princeton University Press
- DOI:
- 10.23943/princeton/9780691158709.003.0010
- Subject:
- Economics and Finance, Economic History
This chapter shows that predicaments facing the European Union today are reminiscent of constitutional decisions the United States faced not once, but twice. It begins with a simple expected present ...
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This chapter shows that predicaments facing the European Union today are reminiscent of constitutional decisions the United States faced not once, but twice. It begins with a simple expected present value model for government debt and explains how Hansen and Sargent (1980) used rational expectations econometrics to render this model operational. It then presents a case study that illustrates how the constitutions of the United States have influenced the government net-of-interest surplus process and therefore the value of government debt. Drawing on the unpleasant arithmetic of Sargent and Wallace (1981), the chapter argues that a responsible fiscal policy makes it easy for a monetary authority to sustain low inflation, whereas a profligate fiscal policy has the opposite effect.Less
This chapter shows that predicaments facing the European Union today are reminiscent of constitutional decisions the United States faced not once, but twice. It begins with a simple expected present value model for government debt and explains how Hansen and Sargent (1980) used rational expectations econometrics to render this model operational. It then presents a case study that illustrates how the constitutions of the United States have influenced the government net-of-interest surplus process and therefore the value of government debt. Drawing on the unpleasant arithmetic of Sargent and Wallace (1981), the chapter argues that a responsible fiscal policy makes it easy for a monetary authority to sustain low inflation, whereas a profligate fiscal policy has the opposite effect.
Thomas J. Sargent
- Published in print:
- 2013
- Published Online:
- October 2017
- ISBN:
- 9780691158709
- eISBN:
- 9781400847648
- Item type:
- chapter
- Publisher:
- Princeton University Press
- DOI:
- 10.23943/princeton/9780691158709.003.0008
- Subject:
- Economics and Finance, Economic History
This chapter consists of six essays that use “unpleasant monetarist arithmetic” to interpret events during the 1980s and 1990s in Brazil and the United States. During the 1980s, the United States ...
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This chapter consists of six essays that use “unpleasant monetarist arithmetic” to interpret events during the 1980s and 1990s in Brazil and the United States. During the 1980s, the United States took steps along a path upon which Brazil had travelled much further, a path along which interest-bearing government debt is growing as a percentage of GNP. The U.S. government was able readily to borrow large amounts, and had far to go before the government's budget constraint threatened to impose painful choices among the options of raising taxes, lowering government expenditures, or printing currency. Brazil found its ability to borrow very limited, and therefore had to confront those painful choices immediately. One essay emphasizes that a country's inflation rate at any moment emerges out of the sustained monetary and fiscal policy that it chooses, now and in the future.Less
This chapter consists of six essays that use “unpleasant monetarist arithmetic” to interpret events during the 1980s and 1990s in Brazil and the United States. During the 1980s, the United States took steps along a path upon which Brazil had travelled much further, a path along which interest-bearing government debt is growing as a percentage of GNP. The U.S. government was able readily to borrow large amounts, and had far to go before the government's budget constraint threatened to impose painful choices among the options of raising taxes, lowering government expenditures, or printing currency. Brazil found its ability to borrow very limited, and therefore had to confront those painful choices immediately. One essay emphasizes that a country's inflation rate at any moment emerges out of the sustained monetary and fiscal policy that it chooses, now and in the future.
Robert N. McCauley and Kazuo Ueda
- Published in print:
- 2012
- Published Online:
- May 2012
- ISBN:
- 9780199698165
- eISBN:
- 9780191738630
- Item type:
- chapter
- Publisher:
- Oxford University Press
- DOI:
- 10.1093/acprof:oso/9780199698165.003.0009
- Subject:
- Economics and Finance, Financial Economics
Debt management can be used at low interest rates to lower bond yields, to provide bank assets and thereby help maintain broad money growth, or to save on interest payments. The US example in the ...
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Debt management can be used at low interest rates to lower bond yields, to provide bank assets and thereby help maintain broad money growth, or to save on interest payments. The US example in the 1930s and the recent Japanese case suggest that this tool was not fully exploited in either case.Less
Debt management can be used at low interest rates to lower bond yields, to provide bank assets and thereby help maintain broad money growth, or to save on interest payments. The US example in the 1930s and the recent Japanese case suggest that this tool was not fully exploited in either case.
Thomas J. Sargent
- Published in print:
- 2013
- Published Online:
- October 2017
- ISBN:
- 9780691158709
- eISBN:
- 9781400847648
- Item type:
- chapter
- Publisher:
- Princeton University Press
- DOI:
- 10.23943/princeton/9780691158709.003.0006
- Subject:
- Economics and Finance, Economic History
This chapter examines the large net-of-interest deficits in the U.S. federal budget that have marked the administration of Ronald Reagan. It explains the fiscal and monetary actions observed during ...
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This chapter examines the large net-of-interest deficits in the U.S. federal budget that have marked the administration of Ronald Reagan. It explains the fiscal and monetary actions observed during the Reagan administration as reflecting the optimal decisions of government policymakers. The discussion is based on an equation whose validity is granted by all competing theories of macroeconomics: the intertemporal government budget constraint. The chapter first considers the government budget balance and the optimal tax smoothing model of Robert Barro before analyzing monetary and fiscal policy during the Reagan years: a string of large annual net-of-interest government deficits accompanied by a monetary policy stance that has been tight, especially before February 1985, and even more so before August 1982. Indicators of tight monetary policy are high real interest rates on government debt and pretax yields that exceed the rate of economic growth.Less
This chapter examines the large net-of-interest deficits in the U.S. federal budget that have marked the administration of Ronald Reagan. It explains the fiscal and monetary actions observed during the Reagan administration as reflecting the optimal decisions of government policymakers. The discussion is based on an equation whose validity is granted by all competing theories of macroeconomics: the intertemporal government budget constraint. The chapter first considers the government budget balance and the optimal tax smoothing model of Robert Barro before analyzing monetary and fiscal policy during the Reagan years: a string of large annual net-of-interest government deficits accompanied by a monetary policy stance that has been tight, especially before February 1985, and even more so before August 1982. Indicators of tight monetary policy are high real interest rates on government debt and pretax yields that exceed the rate of economic growth.
Thomas J. Sargent and François R. Velde
- Published in print:
- 2001
- Published Online:
- November 2003
- ISBN:
- 9780199248278
- eISBN:
- 9780191596605
- Item type:
- chapter
- Publisher:
- Oxford University Press
- DOI:
- 10.1093/0199248273.003.0009
- Subject:
- Economics and Finance, Macro- and Monetary Economics
The Lucas and Stokey (1983) economy without capital is used to exhibit features of the Lucas and Stokey model of optimal taxation, and show how they compare with Barro's (1979) tax‐smoothing model. ...
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The Lucas and Stokey (1983) economy without capital is used to exhibit features of the Lucas and Stokey model of optimal taxation, and show how they compare with Barro's (1979) tax‐smoothing model. Computation of optimal fiscal policies for Lucas and Stokey's model requires repeated evaluations of the present value of the government's surplus, an object formally equivalent to an asset price. The functional equation for an asset price is typically difficult to solve. A linear quadratic version of Lucas and Stokey's model is specified, which makes both asset pricing computations and optimal fiscal policy calculations easy. Martingale returns on government debt are discussed, and examples and extensions of Lucas and Stokey's model given. Two appendices describe and discuss: the key steps for two basic kinds of stochastic process (a stochastic first‐order linear difference equation and a Markov chain), and time consistency and the structure of debt. Lastly, details are given of the appropriate MATLAB programs.Less
The Lucas and Stokey (1983) economy without capital is used to exhibit features of the Lucas and Stokey model of optimal taxation, and show how they compare with Barro's (1979) tax‐smoothing model. Computation of optimal fiscal policies for Lucas and Stokey's model requires repeated evaluations of the present value of the government's surplus, an object formally equivalent to an asset price. The functional equation for an asset price is typically difficult to solve. A linear quadratic version of Lucas and Stokey's model is specified, which makes both asset pricing computations and optimal fiscal policy calculations easy. Martingale returns on government debt are discussed, and examples and extensions of Lucas and Stokey's model given. Two appendices describe and discuss: the key steps for two basic kinds of stochastic process (a stochastic first‐order linear difference equation and a Markov chain), and time consistency and the structure of debt. Lastly, details are given of the appropriate MATLAB programs.
Ranald C. Michie
- Published in print:
- 2001
- Published Online:
- November 2003
- ISBN:
- 9780199242559
- eISBN:
- 9780191596643
- Item type:
- chapter
- Publisher:
- Oxford University Press
- DOI:
- 10.1093/0199242550.003.0012
- Subject:
- Economics and Finance, Economic History, Financial Economics
The first section of this chapter outlines the growing threats to the London Stock Exchange through the 1970s, including the ability of its members to block new proposals by the Council of the Stock ...
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The first section of this chapter outlines the growing threats to the London Stock Exchange through the 1970s, including the ability of its members to block new proposals by the Council of the Stock Exchange, the investigation by the Monopolies Commission into the various restrictive practices of the Stock Exchange, relations with and attitude of the government, the formation of the Council of the Securities Industry (CSI), which was to take over responsibility for the Stock Exchange and other components of the securities market. The second section of the chapter discusses the limited responses of the Stock Exchange to these threats. The next two sections discuss technology and competition (from computerized trading systems), and change among the members (mergers, which resulted in a disproportionately large number of large firms as members, and a loss in numbers of jobbers). The last section looks at market opportunities––domestic corporate securities, government debt securities, loss of the foreign securities, traded options, the collapse of the securities market in 1974, and the by‐now limited role of the money market.Less
The first section of this chapter outlines the growing threats to the London Stock Exchange through the 1970s, including the ability of its members to block new proposals by the Council of the Stock Exchange, the investigation by the Monopolies Commission into the various restrictive practices of the Stock Exchange, relations with and attitude of the government, the formation of the Council of the Securities Industry (CSI), which was to take over responsibility for the Stock Exchange and other components of the securities market. The second section of the chapter discusses the limited responses of the Stock Exchange to these threats. The next two sections discuss technology and competition (from computerized trading systems), and change among the members (mergers, which resulted in a disproportionately large number of large firms as members, and a loss in numbers of jobbers). The last section looks at market opportunities––domestic corporate securities, government debt securities, loss of the foreign securities, traded options, the collapse of the securities market in 1974, and the by‐now limited role of the money market.
Hanaa Kheir-El-Din
- Published in print:
- 2009
- Published Online:
- September 2011
- ISBN:
- 9789774163036
- eISBN:
- 9781617970344
- Item type:
- chapter
- Publisher:
- American University in Cairo Press
- DOI:
- 10.5743/cairo/9789774163036.003.0006
- Subject:
- Political Science, Political Economy
Theory and empirical evidence offers theoretical background and an empirical literature review of the relationship between budget and deficit and the inflationary process. If monetary policy is ...
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Theory and empirical evidence offers theoretical background and an empirical literature review of the relationship between budget and deficit and the inflationary process. If monetary policy is accommodative to a budget deficit, money supply will continue to rise for a long time; the aggregate demand schedule will shift to the right, causing output to increase above the natural level. If monetary policy is accommodative to a persistent budget deficit, the central bank may directly finance budget deficit by lending funds to the government to pay its bills; or else the central bank may purchase government debt at the time of issuance, or later in the course of open market operations. In the monetarist perspective, inflation is driven by money growth.Less
Theory and empirical evidence offers theoretical background and an empirical literature review of the relationship between budget and deficit and the inflationary process. If monetary policy is accommodative to a budget deficit, money supply will continue to rise for a long time; the aggregate demand schedule will shift to the right, causing output to increase above the natural level. If monetary policy is accommodative to a persistent budget deficit, the central bank may directly finance budget deficit by lending funds to the government to pay its bills; or else the central bank may purchase government debt at the time of issuance, or later in the course of open market operations. In the monetarist perspective, inflation is driven by money growth.
Michael Kumhof and Evan Tanner
- Published in print:
- 2008
- Published Online:
- August 2013
- ISBN:
- 9780262182669
- eISBN:
- 9780262282284
- Item type:
- chapter
- Publisher:
- The MIT Press
- DOI:
- 10.7551/mitpress/9780262182669.003.0011
- Subject:
- Economics and Finance, Econometrics
This chapter argues that the reason why policy makers avoid unanticipated levies on government debt is because government debt plays a key role in financial intermediation. Hence, defaulting or ...
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This chapter argues that the reason why policy makers avoid unanticipated levies on government debt is because government debt plays a key role in financial intermediation. Hence, defaulting or inflating it away would be akin to a negative technological shock. To make an empirical case for this argument, the chapter shows that in developing countries (1) government domestic debt is now larger than external debt, and growing relative to external debt; (2) banks voluntarily hold a very large fraction of their assets in domestic government debt; and (3) a deep and stable government bond market is critical for further development of domestic financial markets. In this light, explicit or implicit defaults on government debt would have real costs that would need to be traded off against the benefits of lower distortionary taxation.Less
This chapter argues that the reason why policy makers avoid unanticipated levies on government debt is because government debt plays a key role in financial intermediation. Hence, defaulting or inflating it away would be akin to a negative technological shock. To make an empirical case for this argument, the chapter shows that in developing countries (1) government domestic debt is now larger than external debt, and growing relative to external debt; (2) banks voluntarily hold a very large fraction of their assets in domestic government debt; and (3) a deep and stable government bond market is critical for further development of domestic financial markets. In this light, explicit or implicit defaults on government debt would have real costs that would need to be traded off against the benefits of lower distortionary taxation.
Takero Doi, Toshihiro Ihori, and Kiyoshi Mitsui
- Published in print:
- 2007
- Published Online:
- February 2013
- ISBN:
- 9780226386812
- eISBN:
- 9780226387062
- Item type:
- chapter
- Publisher:
- University of Chicago Press
- DOI:
- 10.7208/chicago/9780226387062.003.0012
- Subject:
- Economics and Finance, South and East Asia
The Japanese government has issued a very huge amount of government debts, making it crucial for the government to implement tight public debt policy. Japan's fiscal situation has deteriorated ...
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The Japanese government has issued a very huge amount of government debts, making it crucial for the government to implement tight public debt policy. Japan's fiscal situation has deteriorated rapidly with the collapse of the bubble economy in the early 1990s and the deep and prolonged period of economic recession that ensued. Since national income did not grow much, tax revenue did not increase either. On the contrary, government spending has been gradually raised due to political pressures of interest groups, resulting in large budget deficits. This chapter examines sustainability issues of Japan's fiscal policy and discusses the country's debt management policy using theoretical models and numerical studies. It also investigates the desirable coordination of fiscal and monetary authorities toward fiscal reconstruction, first reviewing previous studies on sustainability issues and then evaluating Japan's debt management policy. The chapter concludes by investigating confidence crisis of government debt and spontaneous default of fiscal authority.Less
The Japanese government has issued a very huge amount of government debts, making it crucial for the government to implement tight public debt policy. Japan's fiscal situation has deteriorated rapidly with the collapse of the bubble economy in the early 1990s and the deep and prolonged period of economic recession that ensued. Since national income did not grow much, tax revenue did not increase either. On the contrary, government spending has been gradually raised due to political pressures of interest groups, resulting in large budget deficits. This chapter examines sustainability issues of Japan's fiscal policy and discusses the country's debt management policy using theoretical models and numerical studies. It also investigates the desirable coordination of fiscal and monetary authorities toward fiscal reconstruction, first reviewing previous studies on sustainability issues and then evaluating Japan's debt management policy. The chapter concludes by investigating confidence crisis of government debt and spontaneous default of fiscal authority.
Carlo Cottarelli and Julio Escolano
- Published in print:
- 2014
- Published Online:
- September 2015
- ISBN:
- 9780262027182
- eISBN:
- 9780262324113
- Item type:
- chapter
- Publisher:
- The MIT Press
- DOI:
- 10.7551/mitpress/9780262027182.003.0003
- Subject:
- Economics and Finance, Macro- and Monetary Economics
This chapter explores the relationship between government debt dynamics and the sustainability of fiscal policies by focusing on gap measures based on the difference between the actual value of a ...
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This chapter explores the relationship between government debt dynamics and the sustainability of fiscal policies by focusing on gap measures based on the difference between the actual value of a fiscal magnitude, such as the primary balance, and the notional value that would meet specific criteria, such as hitting a target debt ratio in a specified time or satisfying the intertemporal budget constraint (IBC) of the government; estimates of fiscal policy reaction functions (FPRF) that allow testing the consistency of these FPRFs with the IBC condition or the absence of Ponzi-game explosive debt dynamics; and fiscal vulnerability indicators that can flag the likelihood of a future fiscal crisis or stress episode when prespecified threshold values are crossed (typically based on the past predictive power of the indicators). The chapter also presents extensions of basic debt dynamics methodology for the treatment of government assets and the dynamics of net debt, as well as the methodological adjustments necessary to deal with foreign currency-denominated and inflation-indexed debt.Less
This chapter explores the relationship between government debt dynamics and the sustainability of fiscal policies by focusing on gap measures based on the difference between the actual value of a fiscal magnitude, such as the primary balance, and the notional value that would meet specific criteria, such as hitting a target debt ratio in a specified time or satisfying the intertemporal budget constraint (IBC) of the government; estimates of fiscal policy reaction functions (FPRF) that allow testing the consistency of these FPRFs with the IBC condition or the absence of Ponzi-game explosive debt dynamics; and fiscal vulnerability indicators that can flag the likelihood of a future fiscal crisis or stress episode when prespecified threshold values are crossed (typically based on the past predictive power of the indicators). The chapter also presents extensions of basic debt dynamics methodology for the treatment of government assets and the dynamics of net debt, as well as the methodological adjustments necessary to deal with foreign currency-denominated and inflation-indexed debt.
Sara G. Castellanos and Lorenza Martinez
- Published in print:
- 2008
- Published Online:
- August 2013
- ISBN:
- 9780262026321
- eISBN:
- 9780262269025
- Item type:
- chapter
- Publisher:
- The MIT Press
- DOI:
- 10.7551/mitpress/9780262026321.003.0003
- Subject:
- Economics and Finance, Econometrics
This chapter analyzes the Mexican bond market. It describes policies that may have contributed to fostering capital markets and analyzes how much of the recent performance of the corporate debt ...
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This chapter analyzes the Mexican bond market. It describes policies that may have contributed to fostering capital markets and analyzes how much of the recent performance of the corporate debt market in Mexico can be attributed to them. The chapter is organized as follows. The second section describes some macroeconomic aspects and legal reforms that may be influencing the development of bond markets. The third section explains the government debt management strategies and the extension of the yield curve that may have contributed to expanding the corporate debt market. The fourth section portrays in more detail the recent growth trend of the corporate bond market. The fifth section is dedicated to empirical analysis, using two different approaches: Probit and tobit regressions are estimated to determine the impact of macroeconomic and legal factors on the probability of issuing corporate debt and the conditions of issuances. Finally, the sixth section identifies additional ways to encourage the deepening of bond markets, and presents some final remarks.Less
This chapter analyzes the Mexican bond market. It describes policies that may have contributed to fostering capital markets and analyzes how much of the recent performance of the corporate debt market in Mexico can be attributed to them. The chapter is organized as follows. The second section describes some macroeconomic aspects and legal reforms that may be influencing the development of bond markets. The third section explains the government debt management strategies and the extension of the yield curve that may have contributed to expanding the corporate debt market. The fourth section portrays in more detail the recent growth trend of the corporate bond market. The fifth section is dedicated to empirical analysis, using two different approaches: Probit and tobit regressions are estimated to determine the impact of macroeconomic and legal factors on the probability of issuing corporate debt and the conditions of issuances. Finally, the sixth section identifies additional ways to encourage the deepening of bond markets, and presents some final remarks.
Laurence Seidman
- Published in print:
- 2018
- Published Online:
- May 2018
- ISBN:
- 9780190462178
- eISBN:
- 9780190462208
- Item type:
- chapter
- Publisher:
- Oxford University Press
- DOI:
- 10.1093/oso/9780190462178.003.0003
- Subject:
- Economics and Finance, Public and Welfare
Stimulus without debt is a policy that would increase aggregate demand for goods and services in a recession without increasing government debt. Stimulus without debt consists of a transfer (not ...
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Stimulus without debt is a policy that would increase aggregate demand for goods and services in a recession without increasing government debt. Stimulus without debt consists of a transfer (not loan) from the central bank to the national treasury (or to national treasuries in the case of the eurozone) so that the treasury does not have to borrow to finance fiscal stimulus enacted by the legislature. In the United States, Congress would enact a fiscal stimulus package that consists mainly of cash tax rebates to households but also other temporary expenditures and temporary tax cuts; the fiscal stimulus would raise aggregate demand. The Federal Reserve would use new money to give a large transfer (not loan) to the Treasury equal to the fiscal stimulus package so that the Treasury does not have to borrow to pay for the package. Hence, there would be no increase in government debt.Less
Stimulus without debt is a policy that would increase aggregate demand for goods and services in a recession without increasing government debt. Stimulus without debt consists of a transfer (not loan) from the central bank to the national treasury (or to national treasuries in the case of the eurozone) so that the treasury does not have to borrow to finance fiscal stimulus enacted by the legislature. In the United States, Congress would enact a fiscal stimulus package that consists mainly of cash tax rebates to households but also other temporary expenditures and temporary tax cuts; the fiscal stimulus would raise aggregate demand. The Federal Reserve would use new money to give a large transfer (not loan) to the Treasury equal to the fiscal stimulus package so that the Treasury does not have to borrow to pay for the package. Hence, there would be no increase in government debt.
Reinhard Neck and Gottfried Haber
- Published in print:
- 2008
- Published Online:
- August 2013
- ISBN:
- 9780262140980
- eISBN:
- 9780262280495
- Item type:
- chapter
- Publisher:
- The MIT Press
- DOI:
- 10.7551/mitpress/9780262140980.003.0005
- Subject:
- Economics and Finance, Econometrics
This chapter examines the sustainability of public debt in Austria, and is organized as follows. Section 5.2 describes the present situation of the federal budget in Austria and the historical ...
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This chapter examines the sustainability of public debt in Austria, and is organized as follows. Section 5.2 describes the present situation of the federal budget in Austria and the historical development of federal debt and deficit. Section 5.3 briefly reviews the theoretical framework of the government budget constraint. Section 5.4 presents the results of some econometric tests regarding the stationarity of the discounted public debt. Section 5.5 applies Bohn's test for sustainability for Austria. Finally, Section 5.6 summarizes the results of the chapter.Less
This chapter examines the sustainability of public debt in Austria, and is organized as follows. Section 5.2 describes the present situation of the federal budget in Austria and the historical development of federal debt and deficit. Section 5.3 briefly reviews the theoretical framework of the government budget constraint. Section 5.4 presents the results of some econometric tests regarding the stationarity of the discounted public debt. Section 5.5 applies Bohn's test for sustainability for Austria. Finally, Section 5.6 summarizes the results of the chapter.
Mathias Trabandt and Harald Uhlig
- Published in print:
- 2013
- Published Online:
- September 2013
- ISBN:
- 9780226018447
- eISBN:
- 9780226018584
- Item type:
- chapter
- Publisher:
- University of Chicago Press
- DOI:
- 10.7208/chicago/9780226018584.003.0007
- Subject:
- Economics and Finance, Macro- and Monetary Economics
This chapter examines how Laffer curves differ across countries in the United States and the EU-14. It shows that the differences between Laffer curves arise solely due to differences in fiscal ...
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This chapter examines how Laffer curves differ across countries in the United States and the EU-14. It shows that the differences between Laffer curves arise solely due to differences in fiscal policy; that is, the mix of distortionary taxes, government spending, and government debt. Labor income and consumption taxes are important for accounting for most of the cross-country differences. A commentary is also included at the end of the chapter.Less
This chapter examines how Laffer curves differ across countries in the United States and the EU-14. It shows that the differences between Laffer curves arise solely due to differences in fiscal policy; that is, the mix of distortionary taxes, government spending, and government debt. Labor income and consumption taxes are important for accounting for most of the cross-country differences. A commentary is also included at the end of the chapter.
Dale W. Jorgenson, Richard J. Goettle, Mun S. Ho, and Peter J. Wilcoxen
- Published in print:
- 2014
- Published Online:
- September 2014
- ISBN:
- 9780262027090
- eISBN:
- 9780262318563
- Item type:
- chapter
- Publisher:
- The MIT Press
- DOI:
- 10.7551/mitpress/9780262027090.003.0005
- Subject:
- Economics and Finance, Development, Growth, and Environmental
This chapter describes the determination of government expenditures, revenues and deficits, and the determination of imports and exports. Taxes are imposed on labor income, capital income, property, ...
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This chapter describes the determination of government expenditures, revenues and deficits, and the determination of imports and exports. Taxes are imposed on labor income, capital income, property, sales and imports. Tax rates are projected based on revenue projections of the CBO, and average and marginal rates on labor income are distinguished. Deficits are set to CBO projections in the near term and assumed to converge gradually to steady state balance. Deficits cumulate in government debt which determines an exogenous path of interest payments. Imports are regarded as imperfect substitutes (the Armington assumption) and modeled using the Kalman filter in the same way as inputs into the production function. The share of domestic output going to exports is also derived from a translog function of domestic and world prices. The current account balance is exogenous where the constraint is met by an endogenous terms of trade.Less
This chapter describes the determination of government expenditures, revenues and deficits, and the determination of imports and exports. Taxes are imposed on labor income, capital income, property, sales and imports. Tax rates are projected based on revenue projections of the CBO, and average and marginal rates on labor income are distinguished. Deficits are set to CBO projections in the near term and assumed to converge gradually to steady state balance. Deficits cumulate in government debt which determines an exogenous path of interest payments. Imports are regarded as imperfect substitutes (the Armington assumption) and modeled using the Kalman filter in the same way as inputs into the production function. The share of domestic output going to exports is also derived from a translog function of domestic and world prices. The current account balance is exogenous where the constraint is met by an endogenous terms of trade.
Aaron S. Edlin
- Published in print:
- 2014
- Published Online:
- November 2015
- ISBN:
- 9780231160155
- eISBN:
- 9780231504324
- Item type:
- chapter
- Publisher:
- Columbia University Press
- DOI:
- 10.7312/columbia/9780231160155.003.0018
- Subject:
- Economics and Finance, Public and Welfare
This chapter describes how the U.S. government came close but missed its chance to solve the problems of debt and taxes. For years, government debt has soared. The Treasury borrowed more and more ...
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This chapter describes how the U.S. government came close but missed its chance to solve the problems of debt and taxes. For years, government debt has soared. The Treasury borrowed more and more funds and the government paid obscene sums in interest to service the debt. All that almost came to an end on Wednesday, September 17, 2008, when the interest rate on ninety-day Treasuries fell to three basis points. That is 75 cents of interest on $10,000 of borrowing. Government borrowing was essentially free. And the interest rate, falling fast, seemed sure to go negative. Negative interest on Treasuries would mean no more costs from servicing the debt. People would be paying the Treasury for the privilege of using their money. The Bush administration, however, came up with a plan to bail out the private financial system, destroying the Treasury’s competitive advantage by shoring up the Treasury’s competitive rivals in borrowing. Not only does the government now bear the costs of other borrowers failing to repay, but it must now again pay significant sums for its own borrowing.Less
This chapter describes how the U.S. government came close but missed its chance to solve the problems of debt and taxes. For years, government debt has soared. The Treasury borrowed more and more funds and the government paid obscene sums in interest to service the debt. All that almost came to an end on Wednesday, September 17, 2008, when the interest rate on ninety-day Treasuries fell to three basis points. That is 75 cents of interest on $10,000 of borrowing. Government borrowing was essentially free. And the interest rate, falling fast, seemed sure to go negative. Negative interest on Treasuries would mean no more costs from servicing the debt. People would be paying the Treasury for the privilege of using their money. The Bush administration, however, came up with a plan to bail out the private financial system, destroying the Treasury’s competitive advantage by shoring up the Treasury’s competitive rivals in borrowing. Not only does the government now bear the costs of other borrowers failing to repay, but it must now again pay significant sums for its own borrowing.
Ashoka Mody
- Published in print:
- 2018
- Published Online:
- May 2018
- ISBN:
- 9780199351381
- eISBN:
- 9780190873721
- Item type:
- chapter
- Publisher:
- Oxford University Press
- DOI:
- 10.1093/oso/9780199351381.003.0008
- Subject:
- Economics and Finance, International, Macro- and Monetary Economics
This chapter addresses the troubling legacies left by the global financial crisis: rising government debt burdens and slower economic growth prospects. In October 2009, debt burdens were surging at ...
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This chapter addresses the troubling legacies left by the global financial crisis: rising government debt burdens and slower economic growth prospects. In October 2009, debt burdens were surging at about an equal pace in the United States and in the euro area. However, growth prospects looked better in the U.S. than in the euro area because the U.S. Federal Reserve had proactively stimulated its economy while the European Central Bank (ECB) had kept monetary policy tight. Policymakers faced a dilemma. Solving the debt problem required governments to undertake austerity measures—raise taxes and reduce spending; but austerity would lower the demand for goods and services, which would cause incomes to fall and further set back growth prospects. Hence, some, including the International Monetary Fund's Research Department, believed it was important to jump-start economic growth.Less
This chapter addresses the troubling legacies left by the global financial crisis: rising government debt burdens and slower economic growth prospects. In October 2009, debt burdens were surging at about an equal pace in the United States and in the euro area. However, growth prospects looked better in the U.S. than in the euro area because the U.S. Federal Reserve had proactively stimulated its economy while the European Central Bank (ECB) had kept monetary policy tight. Policymakers faced a dilemma. Solving the debt problem required governments to undertake austerity measures—raise taxes and reduce spending; but austerity would lower the demand for goods and services, which would cause incomes to fall and further set back growth prospects. Hence, some, including the International Monetary Fund's Research Department, believed it was important to jump-start economic growth.
Charles W. Calomiris
- Published in print:
- 2003
- Published Online:
- February 2013
- ISBN:
- 9780226032146
- eISBN:
- 9780226032153
- Item type:
- chapter
- Publisher:
- University of Chicago Press
- DOI:
- 10.7208/chicago/9780226032153.003.0008
- Subject:
- Economics and Finance, International
This chapter discusses the problems associated with the existing global financial architecture and proposes a set of solutions to those problems. These include reformulation of rules governing ...
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This chapter discusses the problems associated with the existing global financial architecture and proposes a set of solutions to those problems. These include reformulation of rules governing domestic bank safety-net policies, the lending policy of the International Monetary Fund (IMF), international competition in banking, and government debt management policies. These proposals are intended to replace existing lending programs including the Exchange Stabilization Fund (ESF) and ad hoc emergency lending by the World Bank and the Inter-American Development Bank. This chapter also evaluates the feasibility of implementing the proposed rules.Less
This chapter discusses the problems associated with the existing global financial architecture and proposes a set of solutions to those problems. These include reformulation of rules governing domestic bank safety-net policies, the lending policy of the International Monetary Fund (IMF), international competition in banking, and government debt management policies. These proposals are intended to replace existing lending programs including the Exchange Stabilization Fund (ESF) and ad hoc emergency lending by the World Bank and the Inter-American Development Bank. This chapter also evaluates the feasibility of implementing the proposed rules.
Laurence Seidman
- Published in print:
- 2018
- Published Online:
- May 2018
- ISBN:
- 9780190462178
- eISBN:
- 9780190462208
- Item type:
- chapter
- Publisher:
- Oxford University Press
- DOI:
- 10.1093/oso/9780190462178.003.0001
- Subject:
- Economics and Finance, Public and Welfare
Are we ready to combat the next severe recession? We can be, but we’re not. Experience shows that a huge boost in demand for goods and services can be achieved by a large fiscal stimulus—in ...
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Are we ready to combat the next severe recession? We can be, but we’re not. Experience shows that a huge boost in demand for goods and services can be achieved by a large fiscal stimulus—in particular, a temporary large increase in tax rebates for households. So why aren’t we ready? Because a large fiscal stimulus has always in the past required large borrowing by the Treasury. Fortunately, the assumption that a large fiscal stimulus requires an increase in government debt is false. In fact, it is astonishingly easy to implement a very large fiscal stimulus without any increase in government debt. All it takes is this: When Congress enacts fiscal stimulus, the Federal Reserve can decide to make a transfer (not loan) to the Treasury roughly equal to the fiscal stimulus so the Treasury doesn’t have to borrow. That’s it.Less
Are we ready to combat the next severe recession? We can be, but we’re not. Experience shows that a huge boost in demand for goods and services can be achieved by a large fiscal stimulus—in particular, a temporary large increase in tax rebates for households. So why aren’t we ready? Because a large fiscal stimulus has always in the past required large borrowing by the Treasury. Fortunately, the assumption that a large fiscal stimulus requires an increase in government debt is false. In fact, it is astonishingly easy to implement a very large fiscal stimulus without any increase in government debt. All it takes is this: When Congress enacts fiscal stimulus, the Federal Reserve can decide to make a transfer (not loan) to the Treasury roughly equal to the fiscal stimulus so the Treasury doesn’t have to borrow. That’s it.
