Suchergebnisse

We briefly review the theoretical and empirical consequences of discretionary fiscal policy changes, after which we provide our own estimates for the EU countries. A fiscal expansion raises output and consumption and reduces the trade balance. Moreover, the stimulating effect of higher government purchases is weaker and the trade balance reduction is larger for more open EU economies, consistent with larger leakage effects. Further direct estimates suggest that fiscal expansions in large EU economies have non-negligible consequences for economic activity in the main trading partners. This provides a rationale for the concerted fiscal expansion recently initiated by the European Commission.

We investigate numerically how indexation of funded pensions for inflation can be differentiated across the various groups of fund participants. The pension arrangement is modelled after the Dutch situation. While the aggregate welfare consequences are small, group-specific consequences are more substantial with the workers and future born losing and retirees benefitting from a shift away from uniform indexation. Those welfare shifts result from systematic redistribution of welfare rather than shifts in the benefit of risk sharing provided by the system.

The combination of discretionary montetary policy, labor-market distortions and nominal wage rigidity yields an inflation bias as monetary policy tries to exploit nominal wage contracts to address labor-market distortions. Although an inflation target eliminates this inflation bias, it creates a conflict between monetary policy and discretionary fiscal policy if fiscal policy is set at a higher frequency than nominal wages are. To avoid the associated excessive accumulation of public debt, ceilings on public debt are called for. If countries differ substantially in terms of structural distortions or economic shocks, uniform debt ceilings must be complemented by country-specific debt targets in order to prevent decentralised fiscal authorities from employing debt policy strategically.

The trade-off between inflation and taxation is analysed in a model with heterogeneity in nominal debt holdings. This creates a political conflict among the electorate. As a benchmark we study a "completely representative" democracy, where more inequality leads to higher equilibrium inflation. Extensions include a more realistic two-party nomination system and real money balances in the utility function. Special attention is drawn to the sources of multiple politico-economic equilibria. Finally, an explicit comparison with the capital-levy problem is made. ; Published in connection with a visit at the IIES.