680 research outputs found
Should Public Retirement Plans be Fully Funded?
No full textMost state and local retirement plans strive for full funding, at least by actuarial standards. Funding measured at market values fluctuates and often falls short. A common argument for full funding is that pensions are a form of deferred compensation that does not justify a debt. The paper examines public finance, political economy, and financial market issues that bear on optimal funding, broadly and in a series of models. In a model where most taxpayers hold debt and face intermediation costs, returns on pension assets are less than taxpayers’ cost of borrowing. Pension funding is costly and hence zero funding is optimal. The model also implies that unfunded pension promises are properly discounted at a rate strictly greater than the government’s borrowing rate. If pension funds serve as collateral, funding can be warranted despite the cost. This is shown in a model with legal ambiguity and default risk. Except in special cases, the optimal funding ratio is less than full funding.
The European Monetary System: Deficits and Cures
No full textVorträge von Prof. Henning Bohn Professor of Economics, University of California, Santa Barbara, Prof. Dr. Dr. h.c. mult. Otmar Issing President Center for Financial Studies, Uni-versity of Frankfurt, und Prof. Dr. Frank Westermann Professor of Economics, University of Osnabrüc
Retirement Savings in an Aging Society: A Case for Innovative Government Debt Management
No full textAging societies will have to rely increasingly on private savings to finance retirement. The natural savings vehicles, stocks and bonds, are unfortunately lacking key risk-sharing features that are built into public retirement. Innovative government debt management can address this problem. The optimal policy supplies retirees with securities that share the financial risks of aggregate productivity, asset valuation, and demographic shocks across generations. As the population ages, state-contingent government bonds are a better risk sharing tools than pensions, which become too costly, or taxation, which raises time-consistency problems. Wage-indexed and longevity-indexed bonds in particular yield unambiguous efficiency improvements. To the extent that public pensions remain important, plans with wage-indexed defined benefits seem preferable to defined contributions or price-indexed plans. Capital income taxes and pension trust funds can play a supporting role for risk sharing.
A Static Model for Voting on Social Security
No full textThis paper examines a static voting model for public pensions. The key premise is that families can internalize the cost and benefits of pay-as-you-go programs. A family realizes a net gain if its members collectively receive more in benefits in the current period than they pay in payroll taxes. Abstracting from differences in income, net benefits are positive if the family’s retiree-worker ratio exceeds the national average. If a sufficient fraction of retirees have a suitable number of working-age relatives—not too few and not too many—then a majority of voters belongs to families with above average retiree-worker ratios.social security, public pensions, voting model
Will Social Security and Medicare Remain Viable as the U.S. Population is Aging? An Update
No full textYes, subject to concerns about Medicare inefficiencies and potentially self-confirming skepticism. The U.S. social security system-broadly defined to include Medicare-faces significant financial problems as the result of an aging population. But demographic change is also likely to raise savings, increase wages, and reduce interest rates, and up to a point, a growing GDP-share of medical spending is an efficient response to an aging population. Thus viability is more a political economy than an economic feasibility issue. To examine the political viability of social security, I focus on intertemporal cost-benefit tradeoffs in a median voter setting. For a variety of assumptions and policy alternatives, I find that social security should retain majority support.
The Sustainability of Fiscal Policy in the United States
No full textThe paper examines the sustainability of U.S. fiscal policy, finding substantial evidence in favor. I summarize the U.S. fiscal record from 1792-2003, critically review sustainability conditions and their testable implications, and apply them to U.S. data. I particularly emphasize the ramifications of economic growth. A “growth dividend” has historically covered the entire interest bill on the U.S. debt. Unit root tests on real series, unscaled by GDP, are distorted by the series’ severe heteroskedasticity. The most credible evidence in favor of sustainability is the robust positive response of primary surpluses to fluctuations in the debt-GDP ratio.public debt, sustainability, primary surplus, unit root
The Economic Consequences of Rising U.S. Government Debt: Privileges at Risk
No full textThe rapidly growing federal government debt has become a concern for policy makers and the public. Yet the U.S. government has seemingly unbounded access to credit at low interest rates. Historically, Treasury yields have been below the growth rate of the economy. The paper examines the ramifications of debt financing at low interest rates. Given the short maturity of U.S. public debt – over $2.5 trillion maturing in 2010 – investor expectations are critical. Excessive debts justify reasonable doubts about solvency and monetary stability and thus undermine a financing strategy built on the perception that U.S. debt is safe.
Sovereign Net Worth: An Analytical Framework
No full textThe Fiscal Responsibility Act requires the Crown to articulate targets for a series of fiscal variables, including net worth. Given the dramatic improvement in the fiscal position in recent years, a critical policy question relates to how (and which) measures of Crown net worth should be targeted. This paper sets out a framework for targeting Crown net worth. It does so by supplementing the GAAP-based measure with forward-looking information about spending and tax revenue. The paper argues that targeting net worth for the Crown requires the estimation of a path, rather than a static level.
Thoughts on the Importance of the Meso Perspective: the “ Plattform Produktives Stadtgrün” / Gedanken zur Bedeutung der Mesoperspektive: „Plattform Produktives Stadtgrün“
No full textInvited to contribute to a book section on Berlin, Katrin Bohn thinks about the importance of a middle ground between the big pressing macro questions of climate change and the micro spaces of individual food system activities. She writes: ‘Judging by the realities of environmental degradation, traditional urban planning has failed. Concerns of experts have not been sufficiently acknowledged. It requires a middle ground—a meso perspective—to better enable conversation between the various urban stakeholders and bring about widely supported and lasting change. How can this be initiated? In a time of social media, the author proposes to look at a recently developed tool for information, communication, networking, and—ultimately—urban planning’.Bohn uses the Plattform Produktives Stadtgrün [Plattform Productive Urban Green], a Berlin-based interactive online tool developed in a collaboration between the local council, local community gardeners and external experts, including Katrin, to illustrate such a meso perspective.The book Urban Open Space + is edited by Carolin Mees and published by Jovis. Subtitled Strategies inbetween architecture and open space planning, the bi-lingual publication (English/German) explores ‘commonly used and designed open spaces [as] anchor points in the city and a possible response to the consequences of urbanization and climate change, as well as to the presence of social and cultural differences’
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