Economic and politico-economic equivalence of fiscal policies

Arbeitspapier

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.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: CESifo Working Paper ; No. 3718

Classification and Topics

• Classification: Wirtschaft ; Fiscal Policy ; Social Security and Public Pensions ; National Debt; Debt Management; Sovereign Debt
• Subject: equivalence ; social security ; government debt ; social security reform ; Finanzpolitik ; Öffentliche Schulden ; Public Choice ; Ricardianisches Äquivalenztheorem ; Soziale Sicherung ; Sozialreform ; Theorie

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Gonzalez-Eiras, Martín ; Niepelt, Dirk
• Event: Veröffentlichung
• (who): Center for Economic Studies and ifo Institute (CESifo)
• (where): Munich
• (when): 2012

Further information

• Handle: http://hdl.handle.net/10419/55349
• Last update: 10.03.2025, 11:45 AM CET