The political distortions in public investment projects are investigated within a bipartisan fram... more The political distortions in public investment projects are investigated within a bipartisan framework. The role of scrapping and modifying projects of previous governments receives special attention. The ruling party overspends on large ideological public investment projects and accumulates too much debt to bind the hands of its successor, especially if the probability of being removed from office is large and the possibility of scrapping is not ruled out. These political distortions have implications for the appropriate format of a fiscal rule. A deficit rule, like the Stability and Growth Pact, mitigates the overspending bias in ideological investment projects and improves social welfare. The optimal second-best restriction on public debt exceeds the socially optimal level of public debt. Social welfare is boosted more by investment restrictions on ideological projects. The government then perceives a larger benefit of debt reduction. In fact, if scrapping is forbidden, optimal i...
Pensioenfondsen hebben verschillende instrumenten om het herstel van pensioenfonds-buffers aan te... more Pensioenfondsen hebben verschillende instrumenten om het herstel van pensioenfonds-buffers aan te pakken, maar het vergt forse inkomensoffers. De algemene evenwichts-effecten van niet-indexeren lijken kleiner dan die van het premie-instrument. Verder vergroot niet-indexeren ook de houdbaarheid van het pensioenstelsel. Oudere werknemers ondervinden hiervan echter de meeste schade.
In the context of a two-tier pension system, with a pay-as-you-go first tier and a fully funded s... more In the context of a two-tier pension system, with a pay-as-you-go first tier and a fully funded second tier, we demonstrate that a system with a defined wage-indexed second tier performs strictly better than one with a defined contribution or defined real benefit second tier. The former completely separates systematic redistribution (confined to the first tier) from intergenerational risk sharing (the role of the second tier). This way labor supply is undistorted.
Using real-time data from Europe's Stability and Convergence Programs, we explore how fiscal... more Using real-time data from Europe's Stability and Convergence Programs, we explore how fiscal plans and their implementation in the EU are determined. We find that (1) implemented budgetary adjustment falls systematically short of planned adjustment and this shortfall increases with the projection horizon, (2) variability in the eventual fiscal outcomes is dominated by the implementation errors, (3) there is a limited role for "traditional" political variables, (4) stock-flow adjustments are more important when plans are more ambitious, and (5), most importantly, both the ambition in fiscal plans and their implementation benefit from stronger national fiscal institutions. We emphasise also the importance of credible plans for the eventual fiscal outcomes.
This note argues that the narrow exchange rate margins acted as a target for self-fulfilling spec... more This note argues that the narrow exchange rate margins acted as a target for self-fulfilling speculative attacks leading to the "collapse" of the European Monetary System in August 1993. Exchange rate and interest rate behaviour after the collapse suggests that, by not immediately using their regained monetary freedom, authorities have been able to signal their commitment to stable exchange rates and regained much of their credibility.
Most countries in the European Union are facing a structural deterioration of their public budget... more Most countries in the European Union are facing a structural deterioration of their public budget as a result of the financial and economic crisis. The European Commission (2009) projects an average structural deficit for 2010 of 4.7% for the euro area and a corresponding figure of 5.5% for the entire EU. 2 Actual deficits are generally higher due to the
ABSTRACT Most public-sector pension plans in the United States provide quite generous defined ben... more ABSTRACT Most public-sector pension plans in the United States provide quite generous defined benefits. Long-term projections show that full payment of these promises threatens the finances of many state and local employers, which implies that taxes will have to be increased or pensions and/or other public expenditures reduced. This article analyzes the effectiveness of measures aimed at improving the sustainability of these plans. We consider the impact of contribution increases, benefit reductions, and adjustments in the pension fund’s investment strategy. Since a pension fund can be seen as a zero-sum game, these interventions imply value redistributions among current and future plan participants and current and future tax payers. We use the value-based asset-liability management (ALM) method to estimate the value of those transfers. These imply massive value redistributions from taxpayers to plan participants that could exceed 20% of American GDP. Hence, plan sustainability may be achieved only through either substantially higher contributions or lower benefits.
The political distortions in public investment projects are investigated within a bipartisan fram... more The political distortions in public investment projects are investigated within a bipartisan framework. The role of scrapping and modifying projects of previous governments receives special attention. The ruling party overspends on large ideological public investment projects and accumulates too much debt to bind the hands of its successor, especially if the probability of being removed from office is large and the possibility of scrapping is not ruled out. These political distortions have implications for the appropriate format of a fiscal rule. A deficit rule, like the Stability and Growth Pact, mitigates the overspending bias in ideological investment projects and improves social welfare. The optimal second-best restriction on public debt exceeds the socially optimal level of public debt. Social welfare is boosted more by investment restrictions on ideological projects. The government then perceives a larger benefit of debt reduction. In fact, if scrapping is forbidden, optimal i...
Pensioenfondsen hebben verschillende instrumenten om het herstel van pensioenfonds-buffers aan te... more Pensioenfondsen hebben verschillende instrumenten om het herstel van pensioenfonds-buffers aan te pakken, maar het vergt forse inkomensoffers. De algemene evenwichts-effecten van niet-indexeren lijken kleiner dan die van het premie-instrument. Verder vergroot niet-indexeren ook de houdbaarheid van het pensioenstelsel. Oudere werknemers ondervinden hiervan echter de meeste schade.
In the context of a two-tier pension system, with a pay-as-you-go first tier and a fully funded s... more In the context of a two-tier pension system, with a pay-as-you-go first tier and a fully funded second tier, we demonstrate that a system with a defined wage-indexed second tier performs strictly better than one with a defined contribution or defined real benefit second tier. The former completely separates systematic redistribution (confined to the first tier) from intergenerational risk sharing (the role of the second tier). This way labor supply is undistorted.
Using real-time data from Europe's Stability and Convergence Programs, we explore how fiscal... more Using real-time data from Europe's Stability and Convergence Programs, we explore how fiscal plans and their implementation in the EU are determined. We find that (1) implemented budgetary adjustment falls systematically short of planned adjustment and this shortfall increases with the projection horizon, (2) variability in the eventual fiscal outcomes is dominated by the implementation errors, (3) there is a limited role for "traditional" political variables, (4) stock-flow adjustments are more important when plans are more ambitious, and (5), most importantly, both the ambition in fiscal plans and their implementation benefit from stronger national fiscal institutions. We emphasise also the importance of credible plans for the eventual fiscal outcomes.
This note argues that the narrow exchange rate margins acted as a target for self-fulfilling spec... more This note argues that the narrow exchange rate margins acted as a target for self-fulfilling speculative attacks leading to the "collapse" of the European Monetary System in August 1993. Exchange rate and interest rate behaviour after the collapse suggests that, by not immediately using their regained monetary freedom, authorities have been able to signal their commitment to stable exchange rates and regained much of their credibility.
Most countries in the European Union are facing a structural deterioration of their public budget... more Most countries in the European Union are facing a structural deterioration of their public budget as a result of the financial and economic crisis. The European Commission (2009) projects an average structural deficit for 2010 of 4.7% for the euro area and a corresponding figure of 5.5% for the entire EU. 2 Actual deficits are generally higher due to the
ABSTRACT Most public-sector pension plans in the United States provide quite generous defined ben... more ABSTRACT Most public-sector pension plans in the United States provide quite generous defined benefits. Long-term projections show that full payment of these promises threatens the finances of many state and local employers, which implies that taxes will have to be increased or pensions and/or other public expenditures reduced. This article analyzes the effectiveness of measures aimed at improving the sustainability of these plans. We consider the impact of contribution increases, benefit reductions, and adjustments in the pension fund’s investment strategy. Since a pension fund can be seen as a zero-sum game, these interventions imply value redistributions among current and future plan participants and current and future tax payers. We use the value-based asset-liability management (ALM) method to estimate the value of those transfers. These imply massive value redistributions from taxpayers to plan participants that could exceed 20% of American GDP. Hence, plan sustainability may be achieved only through either substantially higher contributions or lower benefits.
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Papers by R. Beetsma