Michael Veseth
- Published in print:
- 1991
- Published Online:
- October 2011
- ISBN:
- 9780195064209
- eISBN:
- 9780199854998
- Item type:
- book
- Publisher:
- Oxford University Press
- DOI:
- 10.1093/acprof:oso/9780195064209.001.0001
- Subject:
- Economics and Finance, Economic History
This book surveys the growth and decline of the Florentine economy, and that of Victorian Britain, and relates their experiences to the United States in the era following World War II, a period ...
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This book surveys the growth and decline of the Florentine economy, and that of Victorian Britain, and relates their experiences to the United States in the era following World War II, a period notable for accumulating public debt. It also speculates on what options the United States may have to avoid the fates of Florence and Victorian Britain in the future.Less
This book surveys the growth and decline of the Florentine economy, and that of Victorian Britain, and relates their experiences to the United States in the era following World War II, a period notable for accumulating public debt. It also speculates on what options the United States may have to avoid the fates of Florence and Victorian Britain in the future.
J. C. R. Dow and I. D. Saville
- Published in print:
- 1990
- Published Online:
- November 2003
- ISBN:
- 9780198283195
- eISBN:
- 9780191596186
- Item type:
- chapter
- Publisher:
- Oxford University Press
- DOI:
- 10.1093/0198283199.003.0006
- Subject:
- Economics and Finance, Macro- and Monetary Economics
In this chapter, the area of interest is the public sector. It begins by assessing the major theoretical implications of government action such as government spending and public‐sector debt. It ...
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In this chapter, the area of interest is the public sector. It begins by assessing the major theoretical implications of government action such as government spending and public‐sector debt. It examines the effects of fiscal policy on public debt and interest rates and the role of the state in the issuing of coinage and notes. It concludes with a discussion on fiscal and monetary policy in the UK, and the role of banks in public borrowing.Less
In this chapter, the area of interest is the public sector. It begins by assessing the major theoretical implications of government action such as government spending and public‐sector debt. It examines the effects of fiscal policy on public debt and interest rates and the role of the state in the issuing of coinage and notes. It concludes with a discussion on fiscal and monetary policy in the UK, and the role of banks in public borrowing.
David Stasavage
- Published in print:
- 2011
- Published Online:
- October 2017
- ISBN:
- 9780691140575
- eISBN:
- 9781400838875
- Item type:
- chapter
- Publisher:
- Princeton University Press
- DOI:
- 10.23943/princeton/9780691140575.003.0006
- Subject:
- Economics and Finance, Economic History
This chapter examines public credit and political representation in three European city-states: Cologne, Genoa, and Siena. The goal is to identify the mechanisms at work that determined whether a ...
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This chapter examines public credit and political representation in three European city-states: Cologne, Genoa, and Siena. The goal is to identify the mechanisms at work that determined whether a state had access to credit and at what cost. The chapter considers how public debt was an issue of strong and often violent social conflict within city-states, along with the importance of political control by merchants. The experience of Cologne, Genoa, and Siena shows that there was nothing more effective in ensuring access to credit than being ruled by a merchant oligarchy. Evidence also suggests that when merchant control was challenged, this had negative consequences for access to credit.Less
This chapter examines public credit and political representation in three European city-states: Cologne, Genoa, and Siena. The goal is to identify the mechanisms at work that determined whether a state had access to credit and at what cost. The chapter considers how public debt was an issue of strong and often violent social conflict within city-states, along with the importance of political control by merchants. The experience of Cologne, Genoa, and Siena shows that there was nothing more effective in ensuring access to credit than being ruled by a merchant oligarchy. Evidence also suggests that when merchant control was challenged, this had negative consequences for access to credit.
Timothy Besley
- Published in print:
- 2007
- Published Online:
- October 2011
- ISBN:
- 9780199283910
- eISBN:
- 9780191700279
- Item type:
- chapter
- Publisher:
- Oxford University Press
- DOI:
- 10.1093/acprof:oso/9780199283910.003.0004
- Subject:
- Economics and Finance, Public and Welfare
This chapter applies the political agency model to public finance issues. Section 4.2 lays out the basic agency problem and the main assumptions. Section 4.3 identifies the three basic kinds of ...
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This chapter applies the political agency model to public finance issues. Section 4.2 lays out the basic agency problem and the main assumptions. Section 4.3 identifies the three basic kinds of agency model. The first has purely hidden type, the second only hidden action, and the third both features. Section 4.4 draws out some implications of the model for the data. Section 4.5 uses the model to discuss a variety of means for restraining government: explicit restraints on taxation, tax competition, increased transparency, and yardstick competition. The model is then extended to include public debt. If public debt is observable, then the model and its insights remain unchanged. However, difficulties in observing public debt levels do create a rather different spin on the model. This is discussed in Section 4.6. Section 4.7 applies the ideas to whether an NGO is a more efficient provider of public spending. Section 4.8 looks at what happens if it is fiscal competence that is not observed and Section 4.9 provides conclusions.Less
This chapter applies the political agency model to public finance issues. Section 4.2 lays out the basic agency problem and the main assumptions. Section 4.3 identifies the three basic kinds of agency model. The first has purely hidden type, the second only hidden action, and the third both features. Section 4.4 draws out some implications of the model for the data. Section 4.5 uses the model to discuss a variety of means for restraining government: explicit restraints on taxation, tax competition, increased transparency, and yardstick competition. The model is then extended to include public debt. If public debt is observable, then the model and its insights remain unchanged. However, difficulties in observing public debt levels do create a rather different spin on the model. This is discussed in Section 4.6. Section 4.7 applies the ideas to whether an NGO is a more efficient provider of public spending. Section 4.8 looks at what happens if it is fiscal competence that is not observed and Section 4.9 provides conclusions.
Giovanni Piersanti
- Published in print:
- 2012
- Published Online:
- September 2012
- ISBN:
- 9780199653126
- eISBN:
- 9780191741210
- Item type:
- chapter
- Publisher:
- Oxford University Press
- DOI:
- 10.1093/acprof:oso/9780199653126.003.0004
- Subject:
- Economics and Finance, Macro- and Monetary Economics
This chapter discusses the basic analytical framework of “second-generation” models of currency crises and their extensions to deal with new characteristics of international financial crises such as ...
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This chapter discusses the basic analytical framework of “second-generation” models of currency crises and their extensions to deal with new characteristics of international financial crises such as the connections between financial fragility and currency instability, government's reputation and credibility, asymmetric information and herding behavior, contagion across markets and countries, financial intermediation and liquidity crises, credit constraints and balance-sheet effects, strategic interaction among agents and equilibrium selection. The most important implication to emerge from this approach is that the run on central bank foreign reserves does not require policy inconsistencies and an adverse trend in the fundamentals before the crisis. The attack itself may induce an optimizing regime-switching choice that makes the crisis self-validating. Thus, the exact timing of a speculative attack turns to be indeterminate and arduous to forecast.Less
This chapter discusses the basic analytical framework of “second-generation” models of currency crises and their extensions to deal with new characteristics of international financial crises such as the connections between financial fragility and currency instability, government's reputation and credibility, asymmetric information and herding behavior, contagion across markets and countries, financial intermediation and liquidity crises, credit constraints and balance-sheet effects, strategic interaction among agents and equilibrium selection. The most important implication to emerge from this approach is that the run on central bank foreign reserves does not require policy inconsistencies and an adverse trend in the fundamentals before the crisis. The attack itself may induce an optimizing regime-switching choice that makes the crisis self-validating. Thus, the exact timing of a speculative attack turns to be indeterminate and arduous to forecast.
Gerardo P. Sicat and Rahimaisa D. Abdula
- Published in print:
- 2003
- Published Online:
- November 2003
- ISBN:
- 9780195158984
- eISBN:
- 9780199869107
- Item type:
- chapter
- Publisher:
- Oxford University Press
- DOI:
- 10.1093/0195158989.003.0004
- Subject:
- Economics and Finance, Development, Growth, and Environmental
Reviews the Philippine public finance experience over two decades from 1980 to 2000. It notes that in some years, the government's dominant fiscal problems were caused, at least initially, by ...
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Reviews the Philippine public finance experience over two decades from 1980 to 2000. It notes that in some years, the government's dominant fiscal problems were caused, at least initially, by external economic shocks, with domestic adjustments to them – including political upheavals – resulting in a unique trajectory of development experience. Its review of public finance history covers operational deficits and fiscal stabilization, public expenditure, revenue mobilization, and “hidden” deficits from quasi‐fiscal activities. The study first asserts that the country's fiscal strategy has been influenced for the most part by the need to rein in domestic expenditure to match the level of available fiscal resources. Next, it argues that the growth in public expenditure has largely been constrained by the scarcity of fiscal resources. Finally, it shows that the strengthening tax administration remains a sticking point, as nontax revenues are only temporary measures to bridge the expenditure gap.Less
Reviews the Philippine public finance experience over two decades from 1980 to 2000. It notes that in some years, the government's dominant fiscal problems were caused, at least initially, by external economic shocks, with domestic adjustments to them – including political upheavals – resulting in a unique trajectory of development experience. Its review of public finance history covers operational deficits and fiscal stabilization, public expenditure, revenue mobilization, and “hidden” deficits from quasi‐fiscal activities. The study first asserts that the country's fiscal strategy has been influenced for the most part by the need to rein in domestic expenditure to match the level of available fiscal resources. Next, it argues that the growth in public expenditure has largely been constrained by the scarcity of fiscal resources. Finally, it shows that the strengthening tax administration remains a sticking point, as nontax revenues are only temporary measures to bridge the expenditure gap.
David Stasavage
- Published in print:
- 2011
- Published Online:
- October 2017
- ISBN:
- 9780691140575
- eISBN:
- 9781400838875
- Item type:
- chapter
- Publisher:
- Princeton University Press
- DOI:
- 10.23943/princeton/9780691140575.003.0004
- Subject:
- Economics and Finance, Economic History
This chapter examines whether the difference in the activities of representative assemblies in city-states and territorial states had implications for the evolution of public credit. It first ...
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This chapter examines whether the difference in the activities of representative assemblies in city-states and territorial states had implications for the evolution of public credit. It first develops a basic game theoretic model that demonstrates how both political representation and public credit might emerge as an equilibrium outcome dependent on an underlying cost for representatives of monitoring public finances. It then uses the model to conduct empirical tests in order to identify what factors were correlated with the initial creation of a long-term public debt. Three hypotheses are tested: that access to credit depended on commercial and economic development; that access to credit depended on the presence of representative institutions; and that access to credit depended on the differing underlying conditions in city-states and territorial states. The results show that greater commercial and economic development favored access to public credit.Less
This chapter examines whether the difference in the activities of representative assemblies in city-states and territorial states had implications for the evolution of public credit. It first develops a basic game theoretic model that demonstrates how both political representation and public credit might emerge as an equilibrium outcome dependent on an underlying cost for representatives of monitoring public finances. It then uses the model to conduct empirical tests in order to identify what factors were correlated with the initial creation of a long-term public debt. Three hypotheses are tested: that access to credit depended on commercial and economic development; that access to credit depended on the presence of representative institutions; and that access to credit depended on the differing underlying conditions in city-states and territorial states. The results show that greater commercial and economic development favored access to public credit.
Christopher Dow
- Published in print:
- 2000
- Published Online:
- November 2003
- ISBN:
- 9780199241231
- eISBN:
- 9780191596179
- Item type:
- chapter
- Publisher:
- Oxford University Press
- DOI:
- 10.1093/0199241236.003.0011
- Subject:
- Economics and Finance, Macro- and Monetary Economics
The empirical findings of this study rest on two sorts of evidence: first, a set of detailed case studies of the five major UK recessions since 1920; and second, a statistical analysis that seeks to ...
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The empirical findings of this study rest on two sorts of evidence: first, a set of detailed case studies of the five major UK recessions since 1920; and second, a statistical analysis that seeks to explain these and other fluctuations in terms of indicators of four types of exogenous demand shock. This chapter summarizes this evidence and its underlying rationale; it needs to be read with Ch. 10, and like that aims to be self‐contained; the picture presented does not have to be accepted or rejected as a bloc. The explicanda of the study are taken to be not absolute falls in output during a recession, but deviations of output from previous trend rates of constant‐employment growth; Sect. 11.1 summarizes how such trends are estimated, and this provides a rough estimate of the output loss resulting from major recessions. Sect. 11.2 summarizes the statistical analysis of the causation of major recessions and other fluctuations, and recapitulates the methods used to estimate the scale of shocks and their effect on output; Sect. 11.3 provides a summary of the case studies of the five major UK recessions, and the Great Depression in the USA; and Sect. 11.4 summarizes possible reasons for the long period from World War II to 1973 that saw fairly steady growth without major recessions. Section 11.5 concludes with notes on, first, the effect of the three major recessions since 1973 on the stock of public debt; and, second, whether major recessions are predictable.Less
The empirical findings of this study rest on two sorts of evidence: first, a set of detailed case studies of the five major UK recessions since 1920; and second, a statistical analysis that seeks to explain these and other fluctuations in terms of indicators of four types of exogenous demand shock. This chapter summarizes this evidence and its underlying rationale; it needs to be read with Ch. 10, and like that aims to be self‐contained; the picture presented does not have to be accepted or rejected as a bloc. The explicanda of the study are taken to be not absolute falls in output during a recession, but deviations of output from previous trend rates of constant‐employment growth; Sect. 11.1 summarizes how such trends are estimated, and this provides a rough estimate of the output loss resulting from major recessions. Sect. 11.2 summarizes the statistical analysis of the causation of major recessions and other fluctuations, and recapitulates the methods used to estimate the scale of shocks and their effect on output; Sect. 11.3 provides a summary of the case studies of the five major UK recessions, and the Great Depression in the USA; and Sect. 11.4 summarizes possible reasons for the long period from World War II to 1973 that saw fairly steady growth without major recessions. Section 11.5 concludes with notes on, first, the effect of the three major recessions since 1973 on the stock of public debt; and, second, whether major recessions are predictable.
Julia I. Bertelsmann
- Published in print:
- 2013
- Published Online:
- January 2014
- ISBN:
- 9780199644476
- eISBN:
- 9780191749100
- Item type:
- chapter
- Publisher:
- Oxford University Press
- DOI:
- 10.1093/acprof:oso/9780199644476.003.0005
- Subject:
- Economics and Finance, Financial Economics
The author presents a number of arguments for the establishment of independent institutions to improve fiscal sustainability and avert debt crises. The main argument is based on recent empirical ...
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The author presents a number of arguments for the establishment of independent institutions to improve fiscal sustainability and avert debt crises. The main argument is based on recent empirical literature suggesting that high levels of public debt appear to reduce economic growth. Yet, in spite of the costs, governments have an observed tendency to accumulate excessive debt. Based on theories drawn from behavioural economics and political economy, the author discusses a set of functions that can be performed by independent fiscal institutions—especially by making the public sector more transparent and offering cogent analysis on the macroeconomic and fiscal effects of various policies—to help governments eliminate deficit bias and preserve public debt sustainability.Less
The author presents a number of arguments for the establishment of independent institutions to improve fiscal sustainability and avert debt crises. The main argument is based on recent empirical literature suggesting that high levels of public debt appear to reduce economic growth. Yet, in spite of the costs, governments have an observed tendency to accumulate excessive debt. Based on theories drawn from behavioural economics and political economy, the author discusses a set of functions that can be performed by independent fiscal institutions—especially by making the public sector more transparent and offering cogent analysis on the macroeconomic and fiscal effects of various policies—to help governments eliminate deficit bias and preserve public debt sustainability.
Michael Veseth
- Published in print:
- 1991
- Published Online:
- October 2011
- ISBN:
- 9780195064209
- eISBN:
- 9780199854998
- Item type:
- chapter
- Publisher:
- Oxford University Press
- DOI:
- 10.1093/acprof:oso/9780195064209.003.0009
- Subject:
- Economics and Finance, Economic History
The United States federal government began to experience increasingly severe symptoms of fiscal crisis as the 1980s progressed. Unable to achieve fiscal balance through normal means, the ...
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The United States federal government began to experience increasingly severe symptoms of fiscal crisis as the 1980s progressed. Unable to achieve fiscal balance through normal means, the Gramm-Rudman-Hollings Act provided for arbitrary and automatic budget cuts as a last resort. This chapter examines some of the ways that government, in reacting to fiscal crisis and the new mountains of debt, has influenced or accelerated the pattern of structural change in the economy. Three aspects of fiscal crisis have had particularly significant impacts on the economy: the growth of the public debt since the 1970s, the revision of the income tax in 1986, and the reform of the social security system in 1983. The chapter contains case studies of these three events that chronicle their effect on the economy and their impact on the United States' current and future living standards.Less
The United States federal government began to experience increasingly severe symptoms of fiscal crisis as the 1980s progressed. Unable to achieve fiscal balance through normal means, the Gramm-Rudman-Hollings Act provided for arbitrary and automatic budget cuts as a last resort. This chapter examines some of the ways that government, in reacting to fiscal crisis and the new mountains of debt, has influenced or accelerated the pattern of structural change in the economy. Three aspects of fiscal crisis have had particularly significant impacts on the economy: the growth of the public debt since the 1970s, the revision of the income tax in 1986, and the reform of the social security system in 1983. The chapter contains case studies of these three events that chronicle their effect on the economy and their impact on the United States' current and future living standards.
George B. Dertilis and Constantine Costis
- Published in print:
- 1995
- Published Online:
- November 2003
- ISBN:
- 9780198288039
- eISBN:
- 9780191596230
- Item type:
- chapter
- Publisher:
- Oxford University Press
- DOI:
- 10.1093/0198288034.003.0019
- Subject:
- Economics and Finance, Macro- and Monetary Economics, Economic History
Three chronic economic problems afflicted Greece during the inter‐war period: the deficit on the trade account, high public expenditure combined with comparatively low revenues, and a heavy public ...
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Three chronic economic problems afflicted Greece during the inter‐war period: the deficit on the trade account, high public expenditure combined with comparatively low revenues, and a heavy public debt that contributed to more or less permanent monetary problems. The banking system that operated in this environment was characterized by a high degree of monopoly and a low degree of specialization, and was dominated by the large and powerful National Bank of Greece. The National Bank had virtually exclusive rights for currency issue, but it did not accept the obligations of a proper central bank in respect of the discount‐rate policy, open‐market operations, and the need to play a stabilizing role in the economy. However, it did on occasion act as lender‐of‐last‐resort, and this was of considerable benefit to the banking sector.Less
Three chronic economic problems afflicted Greece during the inter‐war period: the deficit on the trade account, high public expenditure combined with comparatively low revenues, and a heavy public debt that contributed to more or less permanent monetary problems. The banking system that operated in this environment was characterized by a high degree of monopoly and a low degree of specialization, and was dominated by the large and powerful National Bank of Greece. The National Bank had virtually exclusive rights for currency issue, but it did not accept the obligations of a proper central bank in respect of the discount‐rate policy, open‐market operations, and the need to play a stabilizing role in the economy. However, it did on occasion act as lender‐of‐last‐resort, and this was of considerable benefit to the banking sector.
Bev Dahlby
- Published in print:
- 2008
- Published Online:
- August 2013
- ISBN:
- 9780262042505
- eISBN:
- 9780262271141
- Item type:
- chapter
- Publisher:
- The MIT Press
- DOI:
- 10.7551/mitpress/9780262042505.003.0008
- Subject:
- Economics and Finance, Econometrics
This chapter focuses on the marginal cost of public funds (MCF) from public sector borrowing. The chapter is organized as follows. Section 8.1 begins with a brief overview of the postwar literature ...
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This chapter focuses on the marginal cost of public funds (MCF) from public sector borrowing. The chapter is organized as follows. Section 8.1 begins with a brief overview of the postwar literature on the burden of the public debt. Section 8.2 uses the Diamond (1965) overlapping generations model to analyze the wealth effect of the public debt and to derive a measure of the marginal cost of funds from public sector borrowing. Section 8.3 analyzes the MCF from public sector debt when interest payments on the debt are financed by a distortionary tax on total output. Section 8.4 uses this framework to derive a rule for the optimal financing of lumpy expenditure projects—use debt financing to equalize over time the marginal cost of public funds through taxes. Finally, Section 8.5 uses a simple endogenous growth model, which incorporates the Ricardian equivalence effect and the distortionary tax effect, to derive a measure of the marginal cost of funds from public sector borrowing and to explore the connection between the level of public debt and the rate of economic growth. This model is used to compute the MCF from public sector borrowing in the Canada and the United States and to consider the effect of higher public debt on the optimal level of public expenditures.Less
This chapter focuses on the marginal cost of public funds (MCF) from public sector borrowing. The chapter is organized as follows. Section 8.1 begins with a brief overview of the postwar literature on the burden of the public debt. Section 8.2 uses the Diamond (1965) overlapping generations model to analyze the wealth effect of the public debt and to derive a measure of the marginal cost of funds from public sector borrowing. Section 8.3 analyzes the MCF from public sector debt when interest payments on the debt are financed by a distortionary tax on total output. Section 8.4 uses this framework to derive a rule for the optimal financing of lumpy expenditure projects—use debt financing to equalize over time the marginal cost of public funds through taxes. Finally, Section 8.5 uses a simple endogenous growth model, which incorporates the Ricardian equivalence effect and the distortionary tax effect, to derive a measure of the marginal cost of funds from public sector borrowing and to explore the connection between the level of public debt and the rate of economic growth. This model is used to compute the MCF from public sector borrowing in the Canada and the United States and to consider the effect of higher public debt on the optimal level of public expenditures.
Christian Gollier
- Published in print:
- 2012
- Published Online:
- October 2017
- ISBN:
- 9780691148762
- eISBN:
- 9781400845408
- Item type:
- book
- Publisher:
- Princeton University Press
- DOI:
- 10.23943/princeton/9780691148762.001.0001
- Subject:
- Economics and Finance, Development, Growth, and Environmental
Our path of economic development has generated a growing list of environmental problems including the disposal of nuclear waste, exhaustion of natural resources, loss of biodiversity, climate change, ...
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Our path of economic development has generated a growing list of environmental problems including the disposal of nuclear waste, exhaustion of natural resources, loss of biodiversity, climate change, and polluted land, air, and water. All these environmental problems raise the crucial challenge of determining what we should and should not do for future generations. It is also central to other policy debates, including, for example, the appropriate level of public debt, investment in public infrastructure, investment in education, and the level of funding for pension benefits and for research and development. Today, the judge, the citizen, the politician, and the entrepreneur are concerned with the sustainability of our development. The objective of this book is to provide a simple framework to organize the debate on what we should do for the future. A key element of analysis by economists is the discount rate—the minimum rate of return required from an investment project to make it desirable to implement. The book outlines the basic theory of the discount rate and the various arguments that favor using a smaller discount rate for more distant cash flows. With principles that can be applied to many policy areas, the book offers an ideal framework for dynamic problems and decision making.Less
Our path of economic development has generated a growing list of environmental problems including the disposal of nuclear waste, exhaustion of natural resources, loss of biodiversity, climate change, and polluted land, air, and water. All these environmental problems raise the crucial challenge of determining what we should and should not do for future generations. It is also central to other policy debates, including, for example, the appropriate level of public debt, investment in public infrastructure, investment in education, and the level of funding for pension benefits and for research and development. Today, the judge, the citizen, the politician, and the entrepreneur are concerned with the sustainability of our development. The objective of this book is to provide a simple framework to organize the debate on what we should do for the future. A key element of analysis by economists is the discount rate—the minimum rate of return required from an investment project to make it desirable to implement. The book outlines the basic theory of the discount rate and the various arguments that favor using a smaller discount rate for more distant cash flows. With principles that can be applied to many policy areas, the book offers an ideal framework for dynamic problems and decision making.
Peter d. Spencer
- Published in print:
- 2000
- Published Online:
- October 2011
- ISBN:
- 9780198776093
- eISBN:
- 9780191695384
- Item type:
- chapter
- Publisher:
- Oxford University Press
- DOI:
- 10.1093/acprof:oso/9780198776093.003.0009
- Subject:
- Economics and Finance, Financial Economics
It was shown in previous chapters that non-financial penalties could reach incentive efficiency in a debt-financed system without collateral, but that, in practice, the probability of detection and ...
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It was shown in previous chapters that non-financial penalties could reach incentive efficiency in a debt-financed system without collateral, but that, in practice, the probability of detection and prosecution may not be a sufficient deterrent to a financial crime. In the same way, non-financial penalties may not be enough to prevent moral hazard. There are capital requirements for upholding honesty and effort in the financial markets. This chapter explores moral hazard in the bank loan and public bond markets, and the ways in which investors can protect themselves. In the previous chapters it was noted that shareholders could align company directors’ interests with their own. If these devices are effective, they can also align managers’ interests with those of shareholders and not of the debtholders. The chapter also presents moral hazard, bond covenants, and accounting systems, as well as bank loan and public debt instruments.Less
It was shown in previous chapters that non-financial penalties could reach incentive efficiency in a debt-financed system without collateral, but that, in practice, the probability of detection and prosecution may not be a sufficient deterrent to a financial crime. In the same way, non-financial penalties may not be enough to prevent moral hazard. There are capital requirements for upholding honesty and effort in the financial markets. This chapter explores moral hazard in the bank loan and public bond markets, and the ways in which investors can protect themselves. In the previous chapters it was noted that shareholders could align company directors’ interests with their own. If these devices are effective, they can also align managers’ interests with those of shareholders and not of the debtholders. The chapter also presents moral hazard, bond covenants, and accounting systems, as well as bank loan and public debt instruments.
Andres Solimano
- Published in print:
- 2016
- Published Online:
- November 2016
- ISBN:
- 9780190626273
- eISBN:
- 9780190626303
- Item type:
- chapter
- Publisher:
- Oxford University Press
- DOI:
- 10.1093/acprof:oso/9780190626273.003.0008
- Subject:
- Economics and Finance, International
This chapter focuses on the process of rapid accumulation of private and public debt in advanced capitalist countries (US, UK, Germany, France, Japan) and in countries of the European periphery ...
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This chapter focuses on the process of rapid accumulation of private and public debt in advanced capitalist countries (US, UK, Germany, France, Japan) and in countries of the European periphery (Spain, Greece, Ireland, Portugal, Italy) before 2008. It spotlights two main cycles of private and public debt in the US since the 1920s, and details the rise of mortgage lending in the major capitalist economies. It also shows the difficulties of reducing private and public debt ratios, say the process known as deleveraging, at times of low growth and/or protracted economic stagnation such as the post-2008 period, and examines historical episodes of debt accumulation and reduction between the 19th and 21st centuries in these economies. Germany’s multiple debt crises in the early to mid-20th century is discussed, as well as China’s current and potentially explosive debt situation.Less
This chapter focuses on the process of rapid accumulation of private and public debt in advanced capitalist countries (US, UK, Germany, France, Japan) and in countries of the European periphery (Spain, Greece, Ireland, Portugal, Italy) before 2008. It spotlights two main cycles of private and public debt in the US since the 1920s, and details the rise of mortgage lending in the major capitalist economies. It also shows the difficulties of reducing private and public debt ratios, say the process known as deleveraging, at times of low growth and/or protracted economic stagnation such as the post-2008 period, and examines historical episodes of debt accumulation and reduction between the 19th and 21st centuries in these economies. Germany’s multiple debt crises in the early to mid-20th century is discussed, as well as China’s current and potentially explosive debt situation.
Li Zeng
- Published in print:
- 2014
- Published Online:
- September 2015
- ISBN:
- 9780262027182
- eISBN:
- 9780262324113
- Item type:
- chapter
- Publisher:
- The MIT Press
- DOI:
- 10.7551/mitpress/9780262027182.003.0005
- Subject:
- Economics and Finance, Macro- and Monetary Economics
This chapter examines some stylized facts about the primary fiscal balance, a key determinant of public debt dynamics which, together with the level of the public debt stock and the differential ...
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This chapter examines some stylized facts about the primary fiscal balance, a key determinant of public debt dynamics which, together with the level of the public debt stock and the differential between the interest rate on public debt and GDP growth, forms the basis for projecting the future path of a country's public debt. More specifically, the chapter estimates the empirical relationship between the primary fiscal balance and its underlying determinants using both country fixed-effect and dynamic-panel data methods. It provides an illustrative example showing how to apply the empirical findings to predict a country's primary fiscal balance on the basis of economic fundamentals. While achieving a large primary fiscal surplus is not unusual, sustaining it over an extended period is quite uncommon. The chapter shows that real economic growth has a significant positive impact on the primary fiscal balance, and that countries tend to run higher primary fiscal balances when faced with higher debt-to-GDP ratios.Less
This chapter examines some stylized facts about the primary fiscal balance, a key determinant of public debt dynamics which, together with the level of the public debt stock and the differential between the interest rate on public debt and GDP growth, forms the basis for projecting the future path of a country's public debt. More specifically, the chapter estimates the empirical relationship between the primary fiscal balance and its underlying determinants using both country fixed-effect and dynamic-panel data methods. It provides an illustrative example showing how to apply the empirical findings to predict a country's primary fiscal balance on the basis of economic fundamentals. While achieving a large primary fiscal surplus is not unusual, sustaining it over an extended period is quite uncommon. The chapter shows that real economic growth has a significant positive impact on the primary fiscal balance, and that countries tend to run higher primary fiscal balances when faced with higher debt-to-GDP ratios.
Manmohan S. Kumar and Jaejoon Woo
- Published in print:
- 2014
- Published Online:
- September 2015
- ISBN:
- 9780262027182
- eISBN:
- 9780262324113
- Item type:
- chapter
- Publisher:
- The MIT Press
- DOI:
- 10.7551/mitpress/9780262027182.003.0006
- Subject:
- Economics and Finance, Macro- and Monetary Economics
This chapter examines the extent to which large public debts will adversely affect investment, productivity, and growth. Drawing on data from a panel of advanced and emerging market economies in the ...
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This chapter examines the extent to which large public debts will adversely affect investment, productivity, and growth. Drawing on data from a panel of advanced and emerging market economies in the period from 1970 to 2008, it shows that initial debt is inversely related to subsequent growth, controlling for other determinants of growth. On average, a 10 percentage point increase in the initial debt-to-GDP ratio is associated over the medium to long run with a slowdown in real per capita GDP growth of approximately 0.2 percentage points per year, with the impact somewhat smaller in advanced economies than in emerging market economies. Some evidence indicates nonlinearity, with higher levels of initial debt having a proportionately larger negative effect on subsequent growth. Moreover, when a country's economic and financial position vis-à-vis the rest of the world is weak or the share of its foreign currency-denominated debt is large, the adverse impact of initial public debt on subsequent growth tends to be much more pronounced than when these factors are at more moderate levels.Less
This chapter examines the extent to which large public debts will adversely affect investment, productivity, and growth. Drawing on data from a panel of advanced and emerging market economies in the period from 1970 to 2008, it shows that initial debt is inversely related to subsequent growth, controlling for other determinants of growth. On average, a 10 percentage point increase in the initial debt-to-GDP ratio is associated over the medium to long run with a slowdown in real per capita GDP growth of approximately 0.2 percentage points per year, with the impact somewhat smaller in advanced economies than in emerging market economies. Some evidence indicates nonlinearity, with higher levels of initial debt having a proportionately larger negative effect on subsequent growth. Moreover, when a country's economic and financial position vis-à-vis the rest of the world is weak or the share of its foreign currency-denominated debt is large, the adverse impact of initial public debt on subsequent growth tends to be much more pronounced than when these factors are at more moderate levels.
Kazimierz Łaski
Jerzy Osiatyński and Jan Toporowski (eds)
- Published in print:
- 2019
- Published Online:
- August 2019
- ISBN:
- 9780198842118
- eISBN:
- 9780191878169
- Item type:
- chapter
- Publisher:
- Oxford University Press
- DOI:
- 10.1093/oso/9780198842118.003.0006
- Subject:
- Economics and Finance, Macro- and Monetary Economics, History of Economic Thought
In the modern capitalist economy, the government fulfills three main economic functions. First, through fiscal policy, it influences employment, prices, and the GDP growth rate. With progressive ...
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In the modern capitalist economy, the government fulfills three main economic functions. First, through fiscal policy, it influences employment, prices, and the GDP growth rate. With progressive taxation and welfare provision, the government can stabilize the economy through counter-cyclical policy. The government’s activity may expand or contract the market if the government’s expenditure exceeds the demand-depressing effects of taxation so that the resulting budget deficit increases the market. The controversy over the fiscal multiplier. Second, government supplements and corrects the market allocation of resources. A fiscal deficit provides a surplus for the private sector and is easier to organize than a rise in private-sector investment. Third, it can mitigate the degree of income disparities and assure a more socially just distribution by reallocating incomes spontaneously generated in the market economy. The government debt that results from fiscal deficits is really a system of income redistribution. However, the household distribution of income has become more unequal in recent years.Less
In the modern capitalist economy, the government fulfills three main economic functions. First, through fiscal policy, it influences employment, prices, and the GDP growth rate. With progressive taxation and welfare provision, the government can stabilize the economy through counter-cyclical policy. The government’s activity may expand or contract the market if the government’s expenditure exceeds the demand-depressing effects of taxation so that the resulting budget deficit increases the market. The controversy over the fiscal multiplier. Second, government supplements and corrects the market allocation of resources. A fiscal deficit provides a surplus for the private sector and is easier to organize than a rise in private-sector investment. Third, it can mitigate the degree of income disparities and assure a more socially just distribution by reallocating incomes spontaneously generated in the market economy. The government debt that results from fiscal deficits is really a system of income redistribution. However, the household distribution of income has become more unequal in recent years.
Lorenzo Forni and Marialuz Moreno Badia
- Published in print:
- 2014
- Published Online:
- September 2015
- ISBN:
- 9780262027182
- eISBN:
- 9780262324113
- Item type:
- chapter
- Publisher:
- The MIT Press
- DOI:
- 10.7551/mitpress/9780262027182.003.0018
- Subject:
- Economics and Finance, Macro- and Monetary Economics
This chapter examines what the goal of fiscal adjustment should be and the extent to which other nonconventional measures can help in restoring and maintaining market confidence in advanced ...
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This chapter examines what the goal of fiscal adjustment should be and the extent to which other nonconventional measures can help in restoring and maintaining market confidence in advanced economies. It first considers the reasons why fiscal adjustment cannot be delayed before discussing the role of fiscal policy. It then explores whether other policies (beyond the fiscal arena) can support consolidation efforts. It argues that despite considerable adjustment, many countries still have a long way to go, making it essential to calibrate the pace of adjustment for the long haul. In particular, it highlights the role of central banks by implementing supportive monetary policies and ensuring the proper working of credit markets. It suggests that financial repression (with or without inflation) is unlikely to produce a large payoff as a captive domestic investor base may be difficult to achieve in a globalized world. It also assesses the privatization of nonfinancial assets and its potential to reduce the debt burden and concludes with an analysis of the implications of debt restructuring, especially if public debt is in the hands of domestic residents.Less
This chapter examines what the goal of fiscal adjustment should be and the extent to which other nonconventional measures can help in restoring and maintaining market confidence in advanced economies. It first considers the reasons why fiscal adjustment cannot be delayed before discussing the role of fiscal policy. It then explores whether other policies (beyond the fiscal arena) can support consolidation efforts. It argues that despite considerable adjustment, many countries still have a long way to go, making it essential to calibrate the pace of adjustment for the long haul. In particular, it highlights the role of central banks by implementing supportive monetary policies and ensuring the proper working of credit markets. It suggests that financial repression (with or without inflation) is unlikely to produce a large payoff as a captive domestic investor base may be difficult to achieve in a globalized world. It also assesses the privatization of nonfinancial assets and its potential to reduce the debt burden and concludes with an analysis of the implications of debt restructuring, especially if public debt is in the hands of domestic residents.
Lars P. Feld and Gebhard Kirchgässner
- Published in print:
- 2008
- Published Online:
- August 2013
- ISBN:
- 9780262140980
- eISBN:
- 9780262280495
- Item type:
- chapter
- Publisher:
- The MIT Press
- DOI:
- 10.7551/mitpress/9780262140980.003.0009
- Subject:
- Economics and Finance, Econometrics
This chapter examines the effects of the three types of constitutional or statutory clauses—fiscal decentralization, direct popular rights, and formal fiscal restraints—on public deficit and debt in ...
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This chapter examines the effects of the three types of constitutional or statutory clauses—fiscal decentralization, direct popular rights, and formal fiscal restraints—on public deficit and debt in the twenty-six Swiss cantons, and is organized as follows. Section 9.2 describes cantonal institutions (called “debt brakes”) aimed at preventing public debt from getting out of control. Section 9.3 presents an econometric model to allow a more systematic analysis of their effects. Section 9.4 discusses the empirical results. Section 9.5 considers the new debt brake that has been introduced at federal level. Section 9.6 discusses the problem of overindebtedness at lower governmental levels that might arise in any federal country. It is shown that with well-designed institutions, federal states might be able to follow a sustainable fiscal policy better than unitary states. Alongside fiscal restrictions, fiscal referenda are useful in achieving that.Less
This chapter examines the effects of the three types of constitutional or statutory clauses—fiscal decentralization, direct popular rights, and formal fiscal restraints—on public deficit and debt in the twenty-six Swiss cantons, and is organized as follows. Section 9.2 describes cantonal institutions (called “debt brakes”) aimed at preventing public debt from getting out of control. Section 9.3 presents an econometric model to allow a more systematic analysis of their effects. Section 9.4 discusses the empirical results. Section 9.5 considers the new debt brake that has been introduced at federal level. Section 9.6 discusses the problem of overindebtedness at lower governmental levels that might arise in any federal country. It is shown that with well-designed institutions, federal states might be able to follow a sustainable fiscal policy better than unitary states. Alongside fiscal restrictions, fiscal referenda are useful in achieving that.
