On the General Relativity of Fiscal Language. Jerry Green Harvard University National Bureau of Economic Research. and

Transcription

1 On he General Relavy of Fcal Language by Jerry Green Harvard Unvery Naonal Bureau of Economc Reearch and Laurence J Kolkoff Boon Unvery Naonal Bureau of Economc Reearch June 2007 We hank Alan Auerbach, Danel Shavro, Ken Smeer, and oher parcpan a he New York Unvery Law School May 5, 2006 conference, Key Iue n Publc Fnance: A Conference n Memory of Davd Bradford for very helpful commen

2 Abrac A cenury ago, everyone hough me and dance were well defned phycal concep Bu neher proved abolue Inead, meaure/repor of me and dance were found o depend on one reference pon, pecfcally one drecon and peed of ravel, makng our apparen phycal realy, n Enen word, merely an lluon Lke me and dance, andard fcal meaure, ncludng defc, axe, and ranfer paymen, depend on one reference pon/reporng procedure/language/label A uch, hey oo repreen number n earch of concep ha provde he lluon of meanng where none ex Th paper, dedcaed o our dear frend, Davd Bradford, provde a general proof ha andard and rounely ued fcal meaure, ncludng he defc, axe, and ranfer paymen, are economcally ll-defned Inead hee meaure reflec he arbrary labelng of underlyng fcal condon Analye baed on hee and dervave meaure, uch a dpoable ncome, prvae ae, and peronal avng, repreen exerce n lnguc, no economc

3 For Davd We are deeply honored o conrbue o h volume n recognon of Davd Bradford Davd wa our very dear frend and menor He wa alo our eadfa enhua, fllng u full of encouragemen and laudng u wh overly generou prae Davd wa a eeker of core ruh, and h marvelou reearch conrbuon are replee wh fundamenal ngh ha eparae economc cence from popular percepon Davd reearch nere overlapped wh our on a wde range of opc, none le han he ue condered here, namely how o dcu and meaure fcal polcy n economcally meanngful way Davd wa parcularly upporve of generaonal accounng, whoe goal o compare he fcal reamen of curren and fuure generaon Indeed, Davd wa a drvng force behnd he developmen of he fr e of generaonal accoun Davd laugh, pr, park, ngh, and uppor connue o uan u He ha moved from he phycal o he meaphycal, bu h preence no le real n our hear, oul, and mnd and wll alway be reaured I Inroducon Th paper provde a general proof ha andard fcal meaure, ncludng he defc, axe, and ranfer paymen, are economcally ll-defned Inead hee meaure reflec he arbrary labelng of underlyng fcal condon Analye baed on hee and dervave meaure, uch a dpoable ncome, prvae ae, and peronal avng, conue he perual of nomenclaure, no he applcaon of economc The argumen ha any underlyng fcal polcy can be repored a enalng any me pah of defc, axe, and ranfer paymen and ha hee meaure are, economcally peakng, conen-free wa orgnally advanced by Kolkoff (986) Auerbach and Kolkoff (987) and Kolkoff (2002) provde formal reamen of he pon, bu neher provde a general proof of he propoon Th paper fll h gap I po a compeve, conngen clam economy ha can accommodae uncerany, nformaon aymmere, doron, exernale, publc good, me nconen polcy, mperfec cred marke, and ncomplee/egmened marke II The Model In h econ we demonrae he propoon decrbed above Specfcally, we how ha one elec any me pah a all for governmen defc, and he general equlbrum of he economy wll evolve o a o duplcae h me pah The repored me pah of defc wll gve re o a me pah of axe, and a me pah of ranfer paymen from he governmen o he prvae agen Thee me pah are muually deermned, one mgh ay relavely deermned, raher han beng deermned a abolue magnude

4 Our mehod of demonrang h propoon o defne carefully all he varable n a general equlbrum model Our model dffer from he clacal prvae ownerhp model only n ha nclude a governmen ecor Governmen polcy unconraned n real erm Wha we how, herefore, ha for any real polcy here are an nfne number of way ha can be repored, n he ene ha he meaured pah of defc n all fuure perod compleely arbrary In wha follow, here are K agen, N ae, M good, V frm, and H endowmen Good nclude leure Endowmen nclude me, varou ype of phycal capal, and naural reource A n Arrow (964), a ae of he world defned by a parcular dae, a parcular reoluon of uncerany, and a pecfcaon of all economcally relevan varable The erm p and q reference pre-polcy producer and endowmen prce vecor n ae Prof Maxmzaon There are V frm, whch may be operaed by prvae agen, he governmen, or boh Frm prof () π max( Σ p y Σ q ϕ + m ), y where y frm x M vecor of ne good upply n ae, ϕ frm x H vecor of endowmen demand, and m a funcon deermnng he governmen ne paymen o frm Producer are aomc and ake producer prce, endowmen prce, and her ne paymen funcon a gven Frm conan reurn producon funcon gven by (2) f ( y,, y N, ϕ,, ϕ N ; Y,, Y N, ϕ,, ϕ N, X,, X N, Z,, Z N, ω,, ω N ) = 0 where Y - a x M x (V-) vecor of ne upple of frm oher han n ae, ϕ a x H x (V-) vecor of ae- endowmen demand of frm oher han, X reference he x M x K vecor of good demanded by agen hrough K n ae, Z reference he x M vecor of good demanded by he governmen n ae, and ω reference he x H vecor of economy-wde endowmen n ae For fuure reference we denoe by Y he x M x V vecor of ne upple of frm hrough V n ae and by ϕ he x H x V vecor of endowmen demand of frm hrough V Includng he Y -, ϕ, X, Z, φ, and ω n (2) eneran he pobly of producon exernale, conumpon exernale, exernale from he ue of 2

5 economy-wde endowmen, a well a exernale arng from he level of economywde endowmen Frm ne paymen funcon, m, may depend on own ae-pecfc ne upple of good and demand for endowmen Bu may alo depend on he ae-pecfc ne upple and demand of oher frm, he conellaon of agen ae-pecfc demand, he conellaon of governmen ae-pecfc demand for good and endowmen, and he economy overall endowmen In oher word, he frm ne paymen funcon may depend on any real varable n he economy Th poenal dependency, whch may be hghly non-lnear, expreed n (3) m = m ( y,, y N, ϕ,, ϕ N ; Y,, Y N, ϕ,, ϕ N, X,, X N, Z,, Z N, ω,, ω N ) Preference Le x reference he x M vecor of good demanded by agen n ae, X - reference he x M x (K-) vecor of good conumed by agen oher han n ae, and Z reference he x M vecor of good conumed by he governmen n ae The uly of agen gven by (4) U = U x,, x ; X,, X, Z,, Z, Y,, Y, ϕ,, ϕ, ω,, ω ) ( N N N N N N The argumen of hee preference accommodae conumer and producer exernale a well a exernale/publc good generaed by producer and governmen demand Thee argumen can alo deermne commody characerc, lke average qualy, ha can be mporan deermnan of demand and welfare n econome characerzed by aymmerc nformaon Prvae Budge The budge conran of agen gven by (5) Σ p x = e, where e he ne reource funcon of agen The ne reource funcon reference he amoun of reource he governmen arrange for agen o be able o pend on aepecfc clam A ndcaed n (6), h funcon may depend no only on he agen own demand for clam n ae of naure, bu alo on he clam of oher agen, he producon of each frm, he governmen ae-pecfc good demand, and he economy ae-pecfc overall endowmen Th dependency may alo be hghly nonlnear 3

6 (6) e = e x, x,, x ; X, X,, X, Z, Z,, Z, Y, Y,, Y, ω, ω,, ω ), ( 2 N 2 N 2 N 2, N 2 N In addon o (5), agen demand are conraned by (7) x Ψ X, X,, X, Z, Z,, Z, Y, Y,, Y, ω, ω,, ω ) ( 2 N 2 N 2, N 2 N Equaon (7) can accommodae a varey of mporan rercon on rade, ncludng hoe arng becaue of ncomplee/egmened marke and borrowng conran Marke Clearng In equlbrum frm upple of good n each ae mu cover agen and governmen demand and he economy-wde upple of endowmen mu cover frm endowmen demand (8) Σ y = Σ x + Z (9) ω = Σϕ The Governmen Budge Equaon (), (5), (8), and (9) mply (0) Σ pz = Σ qω + Σπ Σ e Σ m The economy overall reource con of he value of overall endowmen plu he value of pure prof Thee overall reource le he amoun of ne reource ha he governmen provde o agen and frm mu fnance he governmen demand for good Governmen Polcy Governmen polcy con of a e of e ( ) and m ( ) funcon a well a ae-pecfc governmen produc demand funcon gven by () Z = Z X, X,, X, Z, Z,, Z, Y, Y,, Y, ω, ω,, ω ) ( 2 N 2 N 2, N 2 N 4

7 A (0) ndcae, hee four e of polcy funcon are no muually ndependen Equlbrum In equlbrum houehold maxmze (4) ubec o (5) and (7), frm maxmze () ubec o (2), he governmen only chooe m ( ), e ( ), and Z ( ) funcon conen wh (0), and he marke clearng condon (8) and (9) are afed Reporng Polcy Agen ne reource, e, can be repored a reflecng he marke value of a x H vecor of ae-pecfc prvae endowmen, a, proporonae holdng of frm of θ, le a x K vecor of ae- and good-pecfc ne ax funcon, τ, e, (2) e = Σ q a + Σθ π Σ p τ Snce he elemen a and agen repored hare of frm prof wll be decrbed a conan, he τ funcon mu conan he ame argumen a he e funcon, e, (3) τ = τ x, x,, x ; X, X,, X, Z, Z,, Z, Y, Y,, Y, ω, ω,, ω ) ( 2 N 2 N 2 N 2, N 2 N Noe ha n equlbrum endowmen and producer prce vecor depend on he ame argumen a τ, namely X,,X N, Z,, Z N, Y,,Y N, ω,, ω, o here no need o l hem n (3) a eparae argumen Le Ω reference a x H vecor of repored governmen endowmen n ae Snce endowmen are held eher by agen or he governmen, reporng, for agen, endowmen of a n ae alo requre, for conency, announcng a governmen ne endowmen vecor Ω afyng (4) Ω = ω Σ a Combnng (0), (2), and (4) yeld he more convenonal expreon for he governmen budge, namely (5) Σ pz + ΣΣ m = Σ qω + Σθ gπ + ΣΣ pτ, where (6) θ g = Σθ reference he governmen repored ownerhp hare of frm Equaon (5) can be decrbed a he governmen fnancng good and ne ubde paymen o frm 5

8 from ne worh (he um of he fr wo erm on he rgh-hand de of (5)) plu ne axaon of agen Gven an equlbrum, any pary, be a prvae agen or governmen offcal, free o repor any conellaon of prvae endowmen and correpondng governmen endowmen he wan Aume, for example, ha here a ngle endowmen, namely capal and ha agen k repor prvae ae value of for =,, K and =,, N and prvae frm ownerhp hare θˆ Her correpondng announcemen of governmen ne ax paymen by agen n ae denoed by τˆ, and governmen ae n ae, Ωˆ, mu afy (7) and (8) (7) e = Σ q aˆ + Σ ˆ θ π Σ p ˆ τ (8) Ωˆ = ω Σ â If agen k a fcal conervave (lberal) and reaured by conemplang a large governmen urplu (deb) and low (hgh) axe, he can mply declare very low (hgh) value of prvae ae, â, whch wll lead, accordng o (7) and (8) o hgh repored value of Ωˆ and low repored value of Σ p τˆ Thu he repored level of hee fcal varable are compleely undeermned a ndvdual magnude, bu hey are lnked o each oher by (7) and (8) In h ene hee varable are muually deermned, bu no ndvdually deermned A we dcu below, however, many economc analye n macroeconomc and publc fnance have ued he level of axe or defc a meaurable, denfable varable, a f hee level had an unambguou, ndependen meanng Equaon (7) and (8) complee he demonraon of he propoon ha our man obecve, a aed a he begnnng of h econ One can ee from hee equaon ha a change n Σ â and a correpondng change n Ωˆ and Σ p τˆ leave he real value of each ne reource conan whle changng he repored governmen defc o any dered level Of coure, axe and prvae ae need o be reaed conenly Bu here no nrnc meanng o he level of he defc, or o he level of axe pad or ae held Thee relavc aemen are he man concluon of our propoon Defc Tme one of many characerc of our model ae of naure If we conder wo ae, and ha dffer wh repec o her meaure of me, he dfference n governmen ne deb (he negave of governmen ae) beween he wo ae conue her nervenng defc Snce one can repor any ze deb or urplu for ae and, one free o repor any ze defc (reducon n deb) acro hoe wo â 6

9 ae and, ndeed, acro any wo ae ha one wan Hence, each agen free o concoc whaever defc and aocaed ne ax paymen me ere, pa or preen, ha he wan Tax and Tranfer Paymen Ne axe are defned a gro axe mnu ranfer paymen Gven one repored level of ne axe, one can repor any level of gro axe mnu a correpondng level of ranfer paymen Hence, gro axe and ranfer paymen are u a ll defned a ne axe The ame hold for any meaure ha rely on gro axe and gro ranfer paymen uch a average ax rae or he unfunded lable of ranfer program Inuon There an old oke n whch a huband clam o be n charge of h houehold A he pu o h frend, I make he mporan decon I deermne our houehold foregn polcy and le my wfe handle everyhng ele Knowng who really n charge n a marrage ough bune, and deermnng who own wha can be even harder Indeed, f he houehold rede n a communy propery ae, mpoble o allocae ownerhp The huband and wfe may have eparae bank and oher accoun, bu neher can whhold he corpu of her accoun from he oher Indeed, a varan of he quoed oke I own he money and my wfe pend The prvae ecor and he governmen are no dfferen from a couple lvng under communy propery law They only own everyhng and only deermne how o pend Wheher he governmen ay a) I all mne, bu I ll le you (he prvae ecor) have ome b) I all your, bu I ll ake whaever I d lke or c) I parly mne and parly your, bu I ll deermne how much of mne o gve you and how much of your o keep doe no make an oa of economc dfference III Illurang he Model The canoncal model of governmen deb Damond (965) wo perod lfe-cycle formulaon We now how how he above general formulaon accommodae h model Agen are aumed o conume a ngle good and leure when young and old Labor uppled by young and old homogeneou Oupu of he good, call corn, produced underand conan reurn wh capal and labor There neher populaon nor producvy growh We normalze each cohor populaon o uny The endowmen of me ha can be ued for work or leure per generaon per perod For mplcy, we aume he governmen make no ne paymen o frm, bu doe have a demand for conumpon of he economy ngle good Le c y, l y, c o+, and l o+ and, repecvely, for conumpon and leure when young and old of he generaon born a me The lfeme uly of he generaon born a me gven by 7

10 (9) u u c, l, c, l ) = ( y, y o+ o+ Conder he economy a of me =0 The budge conran facng he old a me 0 gven by (20) c + w l = e o0 0 o0 o0 For generaon born a me 0, he budge conran gven by co+ w + lo+ (2) c y + + wl y + = e + r + r + + In (20) and (2) e o,0 and for he remanng lfeme ne reource funcon of he old a me 0, and e he lfeme ne reource funcon of he generaon born a me Each generaon ne reource funcon can depend freely and n a hghly non-lnear way on conumpon and leure decon And nce each generaon wll conder how conumpon and leure decon affec ne reource boh nfra-margnally and a he margn, h formulaon fully accommodae doronary polcy The producon funcon (22) Y = F K, L ) ( The governmen demand for corn a me g The economy endowmen of capal evolve accordng o (23) K K = Y c y co g + Labor upply deermned by (24) L = 2 l l y Ung (22) and (24), rewre (22) a o (24) K + K = F( K,2 l y lo ) c y co g In hrng capal and labor, frm equae margnal facor produc o pre-polcy facor prce; e, (25) F K ( K,2 l y lo ) = r 8

11 F ( K,2 l l ) = w L y o Polcy In equlbrum he governmen announce a me-pah of ne reource funcon he erm e o0 and e -- and a me pah of corn demand, g, ha afy (24) n each perod gven uly maxmzaon ubec o (9) and (20), and gven he deermnaon va (25) of pre-polcy facor prce Labelng Suppoe he economy n dynamc equlbrum gven governmen polcy a deermned by ne reource and pendng funcon Denoe by an upper bar h equlbrum varable Now conder announcng/reporng any me-pah of offcal deb Dˆ arng a me 0 If one repor ˆD 0 a he amoun of governmen deb prevalng a me 0, he correpondng repor of prvae ae a me 0, â 0, deermned by (26) for =0 The conen repor of ne axe facng he elderly a me 0, ˆo0 τ, deermned by (27) The repored deb for me >0 deermne â from (26) Th deermne gven τˆ y, he repored value of ˆ τ o+ deermned by (29) (26) a ˆ = D ˆ + K (27) e ˆ ˆ o0 = a0 ( + r0 ) + w0 τ o0 (28) aˆ = w ( l y ) c y τˆ y + τˆ y from (28), and, (29) e = w + w ˆ τ ˆ τ + o+ y + r + + r + Relaonhp o he General Formulaon In he above example, (20) and (2) are pecfc cae of (5), (24) a pecfc cae of (8), and he equaon of economy-wde capal and me endowmen wh frm demand for hee endowmen n (25) a pecfc cae of (9) Alhough we ve preened h example aumng ha all cohor member are dencal, he example can readly be modfed o nclude cohor-pecfc heerogeney One need mply apply an ndvdual-pecfc ubcrp o each of he cohor-pecfc varable Dong o doe no rule ou anonymou ne reource funcon Subcrpng ne reource by an agen deny doe no mply ha he funcon deermnng hoe reource (a oppoed o he argumen of he funcon) agen-pecfc Hence, Mrrlee (97) 9

12 opmal ncome ax can be relabeled a freely a any oher ax, wh no aleraon n h underlyng opmal ne reource funcon A Second Illuraon wh Advere Selecon, and Cred Conran Our econd example, nformed by Jaffee and Ruel (976) and Hayah (987), how ha he relavy of fcal language compromed neher by ncomplee nformaon, advere elecon, or cred conran Agen agan lve for wo perod Bu each cohor now feaure wo ype of agen A and B An agen ype prvae nformaon Type B agen are hone They alway repay wha hey owe, wheher hey owe paymen o prvae pare or he governmen In conra, ype A agen are dhone Defne c Ay by (30) V = u c,0), A ( Ay where for = A, B, (3) V maxu ( c, c ) c, c y o y o c + e + r o c y = Noe ha for andard concave uly funcon, c > If ype-a agen are permed o conume more han Ay e A c Ay of her conumpon wll exceed her lfeme ne reource when young, he preen value Denoe by ^ he uly maxmzng value of c and c Conder a eparang equlbrum n whch y o (32) c ˆ > c By Ay and fnancal and fcal nuon perm agen o e her conumpon when young a hgh a, bu no hgher Snce ype A agen are ndfferen beween X, c Ay c Ay conumng when young and zero when old and Y, conumng le han when c Ay Condon (32) could are becaue ype-b agen have hgher ne lfeme reource han ype-a agen or becaue ype-b agen have relavely rong preference for conumng when young 0

13 young and a pove amoun when old, we aume hey chooe opon In conra, gven (32), he conumpon of ype B agen gven by (33) c = and c = ( e c )( r) By c Ay Bo B Ay + The conumpon of ype A agen gven by ĉ and ĉ Noe ha we have decrbed h economy wh no reference o borrowng, axe, or ranfer paymen The budge conran n (3) a pecfc cae of (5), and he conran on agen B conumpon when young and old n (33) a pecfc cae of (7) If we wan, we can decrbe ype-b agen a facng hgh axe when young, bu beng able o borrow large amoun or a facng low axe, bu beng able o borrow mall amoun A polcy of rang curren axe and cung fuure axe ha leave lfeme ne reource unchanged can be decrbed a engenderng an ncreae n prvae lendng ha leave ype-b agen wh he ame fr and econd perod conumpon value Ay Ao IV Reearch and Polcy Implcaon The fac ha one can conruc an nfne number of equally meanngle me ere of governmen deb, defc, axe, ranfer paymen, prvae ae, prvae avng, and dpoable ncome vae a va number of economc analye predcaed on hee meaure Recen example nclude Gale and Orag (2004) and Engen and Hubbard (2005) ude of he effec of budge defc on nere rae, Bell and Boworh (2005) udy of he declne n peronal avng, Bank, Blundell, Smh (200) udy of fnancal wealh nequaly, Slemrod (994) udy of ax progrevy and ncome nequaly, he OECD (997) analy of nequaly n dpoable ncome, he IMF udy of fcal polcy and fnancal developmen (Hauner 2006), and he World Bank udy of fcal uanably (Burnde, 2005) The falure o dnguh economc from lnguc alo undermne heorecal reearch Conder, for example, Barky, Mankw, and Zelde (986) paper on Keynean ax cu Ther polcy enal a hor-run acro-he-board ax cu coupled wh a long-run progreve ax hke, whch preen value neural n erm of he governmen ne recep The polcy provde earnng nurance, whch lead o more curren conumpon The auhor ugge ha h provde a neoclacal ba for he Keynean vew ha ax cu expand aggregae demand In fac, doe no uch hng nce he polcy could equally well be run/decrbed/labeled a enalng a ax hke No doub omeone wll omeday wre a paper argung, from he perpecve of h model, ha a ax hke polcy and a ax cu polcy are equvalen Th proeced paper wll add o he long l of paper purporng o denfy equvalen

14 polce polce ha can be run/mplemened dfferenly, bu ha generae he ame economc oucome Such paper m a cenral pon There are no equvalen polce n neoclacal economc Polce are unque Wha dfferen mply he word we ue o decrbe he ame underlyng polcy Fcher (980) famou paper on he me nconency provde ye anoher example of he confuon of economc and language In Fcher wo-perod model agen fal o ave ou of fear of ex-po effcen, bu ex-ane neffcen capal leve Bu from he perpecve of he econd perod, Fcher capal levy no dfferen, apar from labelng, from a econd-perod nfra-margnal labor ncome ax Were Fcher agen o adop uch a non-doronary labor ax n her econd perod and alo n her fr, hey d acheve a fr-be equlbrum So why doe Fcher conclude ha h economy end up n a hrd be equlbrum n whch no one ave for fear of a capal levy? The anwer h aumpon ha only proporonal labor ncome axe may be leved/announced Bu h aumpon no baed on any economc feaure of h model Inead bol down o a non-economc rercon on language nce, from he perpecve of he econd perod, a capal levy could u a well be called an nfra-margnal labor ncome ax Fcher raonal agen wll urely realze h and alo realze ha f hey can nfra-margnally ax labor n he econd perod, hey can do o n he fr Havng fgured h ou, hey ll end up n he fr be 2 A hrd example of heorecal confuon over real polcy and label he ubquou nvocaon of ranveraly condon requrng ha governmen deb grow, n he long run, no faer han he economy reurn on capal 3 and he preumpon ha econome ha volae uch condon are dynamcally neffcen A ndcaed here, here no lm o he growh n repored deb me nor here any economc aocaon beween he growh rae of repored deb and wha maer for dynamc effcency, namely he devaon beween he growh rae of he economy and reurn o capal To ee h n a le abrac framework, conder a dynamcally effcen wo perod lfecycle model wh a zero nrnc growh rae Aume he economy ng n a aonary ae wh a pove reurn o capal of r Alo aume he economy governmen conume nohng and ake, on ne, nohng from any generaon eher when young or when old Now, arng a me, le label h polcy a he governmen borrowng m h from each agen born a me, makng nfra-margnal ranfer paymen of m h o each agen born a me, repayng prncpal plu nere of m h(+r) a me + o each agen born a me, and nfra-margnally axng a me + each agen born a me n he amoun m h(+r) Th economy repored deb a he 2 Kolkoff (2002) dcue boh Barky, Mankw, and Zelde (986) and Fcher (980) 3 See, for example, Blanchard (985) 2

15 begnnng of me + m h If m>, he economy deb and defc wll head o nfny wh no affec whaoever on he economy or any agen n he economy 4 Turnng o acual polcy, one need only conder he Maarch Treay lmng member of he EURO o 3 percen defc, he Sably and Growh Pac ha ancon EU member wh defc above 3 percen, he IMF endurng ue of he defc o ae fcal prudence, he Gramm-Rudman-Hollng Ac o lm US defc, or he ongong movemen for a US balanced budge amendmen o realze ha offcal repor of defc are a) dramacally nfluencng polcy decon and b) dverng aenon from fundamenal and meanngful meaure of fcal polcy V Concluon A cenury ago, everyone hough ha me and dance were well defned phycal concep Bu neher proved abolue Inead, meaure/repor of me and dance were found o depend on one drecon and peed of ravel makng our apparen phycal realy, n Enen word, merely an lluon Lke me and dance, andard fcal meaure, ncludng defc, axe, and ranfer paymen, depend on one reference pon/reporng procedure/language/label A uch, hey oo repreen number n earch of concep ha provde he lluon of meanng where none ex Econom mu accep h fac and acknowledge ha much of wha hey have been wrng and ayng abou fcal polcy ha been an exerce n lnguc, no economc 4 If m<-, he governmen urplu head o nfny If -<m<, he governmen repor a declnng deb or urplu hrough me 3

16 Reference Arrow, Kenneh J, The Role of Secure n he Opmal Allocaon of Rk-Bearng, Revew of Economc Sude, 3, 964, 9-6 Auerbach, Alan J and Laurence J Kolkoff, Dynamc Fcal Polcy, Cambrdge, England: Cambrdge Unvery Pre, 987 Bank, Jame, Rchard Blundell, and Jame P Smh, Fnancal Wealh Inequaly n he Uned Sae and Bran, The Rand Inue, 200 Barky, Rober B, Gregory Mankw, and Seven P, Zelde, Rchardan Conumer wh Keynean Propene, The Amercan Econonomc Revew, 76 (4), 986, Bell, Lnda and Barry Boworh, The Declne n Houehold Savng: Wha Can We Learn from Survey Daa, mmeo, The Brookng Inuon, Augu 2005 Blanchard, Olver, Deb, Defc, and Fne Horzon, Journal of Polcal Economy, 93 (2), Aprl 985, Burnde, Crag, ed, Fcal Suanably n Theory and Pracce, Wahngon, DC: The World Bank, 2005 Engen, Erc M and R Glenn Hubbard, Federal Governmen Deb and Inere Rae, n NBER Macroeconomc Annual 2004, Mark Gerler and Ken Rogoff, ed, 2005, Fcher, Sanley, Dynamc Inconency, Cooperaon, and he Benevolen Demblng Governmen, Journal of Economc Dynamc and Conrol, 2, 980, Gale, Wllam and Peer R Orag, Budge Defc, Naonal Savng, and Inere Rae, Brookng Paper on Economc Acvy, 2, 2004, 0-20 Hauner, Davd, Fcal Polcy and Fnancal Developmen, IMF Workng Paper, WP/06/26, January 2006 Hayah, Fumo, "Te for Lqudy Conran: A Crcal Survey", nved paper, 5h World Congre of he Economerc Socey, Cambrdge, Ma, n T Bewley ed, Advance n Economerc II: Ffh World Congre, Cambrdge Unvery Pre, 987, 9-20 Hubbard, Glenn, and Erc Engen, "Governmen Deb and Inere Rae, n M Gerler and K Rogoff, NBER Macroeconomc Annual 2004, Cambrdge: MIT Pre, 2005 Jaffee, D M and T Ruel, Imperfec Informaon, Uncerany, and Cred Raonng, Quarerly Journal of Economc, 90,

17 Kolkoff, Laurence J, Defc Deluon, The Publc Inere, Summer 986 Kolkoff, Laurence J, Generaonal Polcy, Cambrdge, MA: MIT Pre, 2002 Mrrlee, Jame A, An Exploraon n he Theory of Opmal Income Taxaon, Revew of Economc Sude, 38, OECD, Income Drbuon and Povery n Seleced OECD Counre, OECD Economc Oulook, December 997 Slemrod, Joel, ed, Tax Progrevy and Income Inequaly, Cambrdge, England: Cambrdge Unvery Pre, 994 Tabelln, Gudo, The Polc of Inergeneraonal Redrbuon, Journal of Polcal Economy, 99 (2), 99,