Fiscal insurance and debt management in OECD economies

Assuming the role of debt management is to provide hedging against fiscal shocks we consider three questions: i) what indicators can be used to assess the performance of debt management? ii) how well have historical debt management policies performed? and iii) how is that performance affected by variations in debt issuance? We consider these questions using OECD data on the market value of government debt between 1970 and 2000. Motivated by both the optimal taxation literature and broad considerations of debt stability we propose a range of performance indicators for debt management. We evaluate these using Monte Carlo analysis and find that those based on the relative persistence of debt perform best. Calculating these measures for OECD data provides only limited evidence that debt management has helped insulate policy against unexpected fiscal shocks. We also find that the degree of fiscal insurance achieved is not well connected to cross country variations in debt issuance patterns. Given the limited volatility observed in the yield curve the relatively small dispersion of debt management practices across countries makes little difference to the realised degree of fiscal insurance.

The Private and fiscal returns to schooling and the effect of public policies on private incentives to invest in education: a general framework and some results for the EU

This paper develops a comprehensive framework for the quantitative analysis of the private and fiscal returns to schooling and of the effect of public policies on private incentives to invest in education. This framework is applied to 14 member states of the European Union. For each of these countries, we construct estimates of the private return to an additional year of schooling for an individual of average attainment, taking into account the effects of education on wages and employment probabilities after allowing for academic failure rates, the direct and opportunity costs of schooling, and the impact of personal taxes, social security contributions and unemployment and pension benefits on net incomes. We also construct a set of effective tax and subsidy rates that measure the effects of different public policies on the private returns to education, and measures of the fiscal returns to schooling that capture the long-term effects of a marginal increase in attainment on public finances under conditions that approximate general equilibrium.

Fiscal sustainability across government tiers

This paper analyses how fiscal adjustment comes about when both central and sub-national governments are involved in consolidation. We test sustainability of public debt with a fiscal rule for both the federal and regional government. Results for the German Länder show that lower tier governments bear a relatively smaller part of the burden of debt consolidation, if they consolidate at all. Most of the fiscal adjustment occurs via central government debt. In contrast, both the US federal and state levels contribute to consolidation of public finances.

The Global Dimension to Fiscal Sustainability

This paper examines the issue of fiscal sustainability in emerging market countries and industrial countries. We highlight the importance of the time series properties of the primary surplus and debt, and find evidence of a positive long run relationship. Consequently we emphasise, that especially for emerging markets, it is important to recognise the implications of global capital market shocks for fiscal sustainability, a relationship which has hitherto been ignored in the empirical literature. Using a factor model we demonstrate that the relationship between deficit and debt is conditional upon a global factor and we suggest that this global factor is related to world-wide liquidity. We also demonstrate that this acts as a constraint on emerging market economies’ fiscal policy.

Countercyclical Fiscal Policy and Cyclical Factor Utilization

In a neoclassical growth model with monopolistic competition in the product market, the presence of cyclical factor utilization enhances the stabilization role of countercyclical taxes. The costs of varying capital utilization take the form of varying rates of depreciation, which in turn have amplifying effect on investment decisions as well as the volatility of most aggregate variables. This creates an additional channel through which taxes affect the economy, a channel that enhances the stabilization role of countercyclical taxes, with particularly strong effects in the labor market. However, in terms of welfare, countercyclical taxes are welfare inferior due to reduced precautionary saving motives.

Relations intergroupes : attribution à la discrimination et perception d'hostilité chez autrui

Résumé: La thèse que nous présentons s'intéresse aux phénomènes d'attribution d'intentions hostiles. Dodge (1980) observe que les individus agressifs ont tendance, en situation ambiguë, à sur-attribuer des intentions hostiles à leurs pairs, ce qui induit des réponses agressives. Pour l'auteur, l'attribution d'intentions hostiles est un médiateur entre certaines caractéristiques personnelles (l'agressivité) des individus, et le type de réponses qu'ils apportent aux situations. Cependant, les informations concernant l'appartenance groupale des "pairs" ne sont jamais prises en compte dans leurs études. Si ce processus est perméable à l'influence des normes et croyances (Bègue et Muller, 2006), aucune étude ne met en évidence quel serait l'impact d'informations groupales sur l'élaboration des réponses aux situations, dans le cadre de ce modèle. L'objectif de cette thèse est de montrer que l'attribution d'intentions hostiles peut être envisagée comme un processus agissant également à un niveau intergroupes et donc prenant en compte des informations groupales sur les individus. En s'inspirant du modèle de Dodge, nous avons émis l'hypothèse que les logiques intergroupes intervenaient dans l'interprétation des intentions des acteurs impliqués dans les interactions, afin de produire une réponse adaptée aux logiques intergroupes. Afin de tester cette hypothèse, nous avons suivi trois axes de recherches: Dans le premier de ces axes, nous avons introduit, dans le paradigme de Dodge, des informations .sur l'appartenance groupale des protagonistes de l'interaction (endogroupe vs exogroupe). Nous avons montré que le type de situation (ambiguë vs hostile) est moins important que l'information groupale dans la production d'une réponse à la situation (Étude 1). En outre, nous avons mis en évidence des processus différents selon la position des individus dans leur groupe (Étude 2). Dans le second axe, nous avons montré que si les différences de statut entre groupes n'influençaient pas directement le modèle de Dodge, elles interagissaient avec l'appartenance groupale et la clarté de la situation au niveau de l'attribution d'intentions hostiles (étude 3) et des intentions comportementales (Ettide 4). Dans le troisième et deriúer axe, nous avons introduit l'attribution d'intentions hostiles dans un processus de dévalorisation d'une cible expliquant un échec par la discrimination (Kaiser et Miller, 2001; 2003). Nous avons alors montré que l'attribution d'intentions hostiles médiatisait le lien entre l'attribution mobilisée pour expliquer l'événement et l'évaluation de la cible (Étude 5), et que ce type d'attribution était spécifique, aux intentions comportementales agressives (Études 6). Nous avons alors conclu sur la dimension sociale de l'attribution d'intentions hostiles et sur le fait qu'il s'agissait d'un élément permettant la construction d'une représentation des interactions sociales. Abstract The present thesis focuses on the phenomena of hostile intents attribution. Dodge (1980) observes that in ambiguous situations, aggressive people tend to over attribute hostile intents to others. This attribution leads them to respond aggressively. According to the author, hostile intents attribution mediates the link between some personal characteristics (aggressiveness for example) of individuals and their responses to the situation. However information related to participants group membership is always neglected in these studies. Begue and Muller (2006) showed that some beliefs could moderate the interaction between aggressiveness and hostile intents attribution on behaviors, but no study exhibited evidence of a similar effect with social information. The aim of this thesis is to show that hostile intents attribution needs to be considered at an intergroup level by taking into account people's group ineinbership. Based on the Dodge model, we formulated the hypothesis that intergroup strategies had an impact on actors' intents interpretations which in return should lead to different but adapted reactions to the situation. To test this hypothesis, three lines of research were developed. In the first line, we introduced, in the Dodge's paradigm, some information about the participants group membership (ingroup vs outgroup). We showed that when elaborating a response to a specific situation its nature (ambiguous vs hostile) had less impact than group membership information (Study 1). In addition, we highlighted some different processes according to the position of individuals in their group (Study 2). In the second line, we showed that if the differences between groups status didn't influence the Dodge model, they interacted with group membership and situation nature to influence hostile intents attribution (Study 3) and behaviors intents (Study 4). In the last line of research, we introduced hostile intents attribution within the process of derogation of a target explaining its failure by discrimination (Kaiser and Miller, 2001; 2003). We showed that hostile intents attribution mediated the link between the attibution mobilized to explain the failure and the derogation of the target (Study 5), and that this attribution type was specifically linked to aggressive behavior intents (Study 6). We finally concluded that hostile intents attribution imply an important social dimension which needs to be taken into account because involved in the construction of a representation of social interactions.

Monetary and Fiscal Policy under Deep Habits

Recent work on optimal policy in sticky price models suggests that demand management through fiscal policy adds little to optimal monetary policy. We explore this consensus assignment in an economy subject to ‘deep’ habits at the level of individual goods where the counter-cyclicality of mark-ups this implies can result in government spending crowding-in private consumption in the short run. We explore the robustness of this mechanism to the existence of price discrimination in the supply of goods to the public and private sectors. We then describe optimal monetary and fiscal policy in our New Keynesian economy subject to the additional externality of deep habits and explore the ability of simple (but potentially nonlinear) policy rules to mimic fully optimal policy.

Subsidies as Optimal Fiscal Stimuli

In the theoretical macroeconomics literature, fiscal policy is almost uniformly taken to mean taxing and spending by a ‘benevolent government’ that exploits the potential aggregate demand externalities inherent in the imperfectly competitive nature of goods markets. Whilst shown to raise aggregate output and employment, these policies crowd-out private consumption and hence typically reduce welfare. In this paper we consider the use of ‘tax-and-subsidise’ instead of ‘taxand- spend’ policies on account of their widespread use by governments, even in the recent recession, to stimulate economic activity. Within a static general equilibrium macro-model with imperfectly competitive good markets we examine the effect of wage and output subsidies and show that, for a small open economy, positive tax and subsidy rates exist which maximise welfare, rendering no intervention as a suboptimal state. We also show that, within a two-country setting, a Nash non-cooperative symmetric equilibrium with positive tax and subsidy rates exists, and that cooperation between trading partners in setting these rates is more expansionary and leads to an improvement upon the non-cooperative solution.

Time-consistent fiscal policy under heterogeneity: Conflicting or common interests?

This paper studies the aggregate and distributional implications of Markov-perfect tax-spending policy in a neoclassical growth model with capitalists and workers. Focusing on the long run, our main fi ndings are: (i) it is optimal for a benevolent government, which cares equally about its citizens, to tax capital heavily and to subsidise labour; (ii) a Pareto improving means to reduce ine¢ ciently high capital taxation under discretion is for the government to place greater weight on the welfare of capitalists; (iii) capitalists and workers preferences, regarding the optimal amount of "capitalist bias", are not aligned implying a conflict of interests.

Joint estimates of automatic and discretionary fiscal policy for the OECD

Official calculations of automatic stabilizers are seriously flawed since they rest on the assumption that the only element of social spending that reacts automatically to the cycle is unemployment compensation. This puts into question many estimates of discretionary fiscal policy. In response, we propose a simultaneous estimate of automatic and discretionary fiscal policy. This leads us, quite naturally, to a tripartite decomposition of the budget balance between revenues, social spending and other spending as a bare minimum. Our headline results for a panel of 20 OECD countries in 1981-2003 are .59 automatic stabilization in percentage-points of primary surplus balances. All of this stabilization remains following discretionary responses during contractions, but arguably only about 3/5 of it remains so in expansions while discretionary behavior cancels the rest. We pay a lot of attention to the impact of the Maastricht Treaty and the SGP on the EU members of our sample and to real time data.

Uncertain Fiscal Consolidations

The paper explores the macroeconomic consequences of fiscal consolidations whose timing and composition are uncertain. Drawing on the evidence in Alesina and Ardagna (2010), we emphasize whether or not the fiscal consolidation is driven by tax rises or expenditure cuts. We find that the composition of the fiscal consolidation, its duration, the monetary policy stance, the level of government debt and expectations over the likelihood and composition of fiscal consolidations all matter in determining the extent to which a given consolidation is expansionary and/or successful in stabilizing government debt.

Fiscal Policy and Learning

Using the standard real business cycle model with lump-sum taxes, we analyze the impact of fiscal policy when agents form expectations using adaptive learning rather than rational expectations (RE). The output multipliers for government purchases are significantly higher under learning, and fall within empirical bounds reported in the literature (in sharp contrast to the implausibly low values under RE). Effectiveness of fiscal policy is demonstrated during times of economic stress like the recent Great Recession. Finally it is shown how learning can lead to dynamics empirically documented during episodes of 'fiscal consolidations.'

Incentivising Investment in the UKCS: a Response to Supporting Investment: a Consultation on the North Sea Fiscal Regime

NORTH SEA STUDY OCCASIONAL PAPER No. 111