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Title:Economic and politico-economic equivalence of fiscal policies PDF Logo
Authors:Gonzalez-Eiras, Martín
Niepelt, Dirk
Issue Date:2012
Series/Report no.:CESifo working paper: Fiscal Policy, Macroeconomics and Growth 3718
Abstract:We extend economic equivalence results, like the Ricardian equivalence proposition, to the political sphere where policy is chosen sequentially. We derive conditions under which a policy regime (summarizing admissible policy choices in every period) and a state are politico-economically equivalent to another such pair, in the sense that both pairs give rise to the same equilibrium allocation. We apply the conditions in the context of politico-economic theories of government debt as a means to i) deliver intergenerational transfers or ii) smooth tax distortions. We find that certain politico-economic models of social security or variants thereof can be re-interpreted as novel politico-economic theories of debt while other models cannot, possibly explaining the political conflict surrounding social security reform. We also find that in environments with distorting taxes, economic equivalence relations between policies with different levels of debt do not extend to the political sphere.
Subjects:equivalence
social security
government debt
social security reform
JEL:E62
H55
H63
Document Type:Working Paper
Appears in Collections:CESifo Working Papers, CESifo Group Munich

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