moodle2.brandeis.edu · Web vie MIDTERM EXAM ON FEB 1 1 Economic and financial stabilization (Feb 23 & 25) What is fiscal policy? Automatic stabilizers Discretionary fiscal policy

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September 30, 2014

The Challenge of High Government Debt: Causes, Consequences and Options

Econ 236a

Professor Lynn Browne

Class dates: Mondays and Wednesdays 11 a.m. to 12:20 p.m.

Location: Chancellors Suite

Office Hours: Before or after class; e-mail to arrange

E-mail: [email protected]

Course Overview

One consequence of the financial crisis of 2007-2009 and the subsequent recession has been a sharp increase in government deficits in advanced countries and in projections of government debt-to-GDP. In many cases, debt-to-GDP was already projected to rise rapidly after 2025 because of the health care and pension needs of aging populations. With the increases caused by the crisis and its aftermath, the starting points are much higher and projected debt ratios reach levels rarely seen in the past.

These high projected debt levels and the associated interest costs provoke concerns on several grounds. Will valued government services be squeezed out by rising interest expense? Will private investment be displaced by government borrowing, with adverse consequences for future economic growth and standards of living? Will financial markets turn against heavily indebted countries, driving up interest rates and creating a vicious cycle of higher interest rates, larger deficits and still higher debt? Will central banks feel compelled to monetize government debt, leading to high rates of inflation?

Policy prescriptions have diverged widely. Some economists and public leaders have advocated tackling government deficits immediately with spending cuts and tax increases. Others have stressed the importance of economic growth in lowering the ratio of debt-to-GDP and have called for increased government spending as a stimulus, even if it means higher deficits. Still others have recommended developing plans that will restrain government spending in the long term, but cautioned against any action that might slow economic activity in the near term.

This course will explore why so many countries find themselves in this difficult predicament. It will also provide a background for understanding the rationales behind the conflicting responses advocated. Students will develop their own recommendations.

Learning goals and outcomes

Among the topics we will cover are

What functions are performed by governments?

Where does the money come from and where does it go?

How does the age of the population affect spending?

What are the characteristics of a good tax system?

Why borrow?

What is countercyclical fiscal policy?

How does it compare with monetary policy?

How stimulative are spending increases and tax cuts?

What caused debt levels to increase so much?

What is a sustainable debt level?

What are the differences and similarities in the debt problems of the United States, Europe and Japan?

What are the differences between the advanced and developing countries?

Course description

The course is a combination of seminar and lecture. The instructor will generally begin the class by providing an overview of key issues and points of debate. However, students will contribute actively to the group learning experience through discussion of what they learned from the assigned readings.

Readings will be assigned for each class. Students are expected (a) to have read these materials in advance and (b) to be ready talk about what they learned.

Pre-requisites

Students should have taken intermediate micro and macroeconomics. Equivalent of undergraduate Econ 80a and 82a or graduate Econ 202a and 207a.

Evaluation

Final grades will be based on five components: (1) a paper on the debt situation in a country to be specified; (2) a shorter paper providing background for the longer paper; (3) a final exam; (4) a mid-term exam; and (5) class participation.

Grading weights:

Paper evaluating debt situation in a country to be specified and proposing recommendations (15-20 pages)Due Apr 1630 percent

Final exam (on entire semesters material)20 percent

Mid- term examOn Feb 1215 percent

Short essay (5 8 pages) Due Mar 1015 percent

Background to longer essay spending, revenue and debt patterns

Class participation20 percent

Class dates (Mondays and Wednesdays):

January1214212628

February249112325

March249111618232530

April11315202227

Apr 30/May 7Final exam period

Things you should do

Attend all classes.

Actively participate in class by asking questions and sharing your own insights and observations. Participation is noted and counted.

Complete papers on time.

Cite others work in your papers.

The papers are NOT team projects. You may discuss the general issues with your colleagues, but you must write your own papers.

Things you should not do.

Quote others without attribution.

Disability: If you are a student with a documented disability on record at Brandeis University and wish to have a reasonable accommodation made for you in this class, please see me at your earliest opportunity.

Academic Integrity is central to the mission of educational excellence at Brandeis. You are expected to be familiar with and to follow the Universitys policies on academic integrity (see http://www.brandeis.edu/studentlife/sdec/ai). Instances of alleged dishonesty will be forwarded to the Office of Campus Life for possible referral to the Student Judicial System. Potential sanctions include failure in the course and suspense from the University.

Course Materials and Readings

Almost all the readings are available on the web.

One inexpensive book has been assigned:

Joseph E. Gagnon, with Marc Hinterschweiger, The Global Outlook for Government Debt over the Next 25 years: Implications for the Economy and Public Policy, Peterson Institute for International Economics, June 2011.

There are a lot of readings but many are short. You should skim them to extract the main points

Course Plan and Associated Readings

1) Course organization and overview of the government debt situation

(Jan 12 & 14)

January 12 Organizational session. Course format and what is expected of students (readings, papers, participation, exams.)

January 14 Overview of government debt

Rebecca M. Nelson, Sovereign Debt in Advanced Economies: Overview and Issues for Congress, Congressional Research Service, January 31, 2013, especially pages 8 11 and appendix.

http://www.fas.org/sgp/crs/misc/R41838.pdf

Willem Buiter and Ebrahim Rahbari, Debt of Nations, November 2012. Skim chapters 1 and 2.

http://gallery.mailchimp.com/828d68d00a72b1ccb86169728/files/5849656_w_buiter_the_debt_crisis_1_.pdf

IMF, Fiscal Monitor: Fiscal Adjustment in an Uncertain World, Apr 2013,

http://www.imf.org/external/pubs/ft/fm/2013/01/pdf/fm1301.pdf

Executive summary, Tables 1,2 and 6 and Statistical Tables 1-4.

Stephen Cecchetti, MS Mohanty and Fabrizio Zampoli, The future of public debt: prospects and implications BIS Working Papers, No 300, March 2010, especially section after p.6 on the future

http://www.bis.org/publ/work300.pdf

2) Key functions of governments (Jan 21 & 26)

a. Improve efficiency (nature of market failure)

b. Re-distribution

i. Rich to poor

ii. Young to old

iii. Healthy to sick

c. Cyclical smoothing

Milton Friedman, Capitalism and Freedom (1962), Chapter 2: The Role of Government in a Free Society

http://books.cat-v.org/economics/capitalism-and-freedom/chapter_02

Thomas Helbling, Externalities: Prices Do Not Capture All Costs

www.imf.org/external/pubs/ft/fandd/basics/external.htm

Tyler Cowen, Public Goods, The Concise Encyclopedia of Economics, Library of Economics and Liberty

http://www.econlib.org/library/Enc/PublicGoods.html

John Dutton, Public and Private Goods/The Tragedy of the Commons

https://www.e-education.psu.edu/geog432/node/277

Jeffrey A. Miron Rethinking Redistribution, National Affairs, Issue Number 6- Winter 2011, especially first section on rationales for redistribution

www.nationalaffairs.com/publications/detail/rethinking-redistribution

Douglas W. Elmendorf and Jason Furman, If, When, How: A Primer on Fiscal Stimulus, The Hamilton Project, pp. 4 9.

http://www.brookings.edu/~/media/research/files/papers/2008/1/10%20fiscal%20stimulus%20elmendorf%20furman/0110_fiscal_stimulus_elmendorf_furman.pdf

3) Government spending patterns (Jan 28)

a. National defense

b. Entitlements

c. Discretionary non-military

d. Capital spending versus operating costs

e. Tax expenditures

f. Who does what? (federal, state, local)

Robert Hicks, Government Growth, The Concise Encyclopedia of Economics, Library of Economics and Liberty

http://www.econlib.org/library/Enc/GovernmentGrowth.html

Nate Silver, What is Driving Growth in Government Spending? NYTimes FiveThirtyEight, January 16, 2013. The charts, which are revealing, only show up online.

http://fivethirtyeight.blogs.nytimes.com/2013/01/16/what-is-driving-growth-in-government-spending/?_r=0

Sabina Dewan and Michael Ettlinger, Comparing Public Spending and Priorities across OECD Countries, Center for American Progress, October 2009. Page 5 on.

www.americanprogress.org/wp-content/uploads/issues/2009/10/pdf/oecd_spending.pdf

OECD, Social spending during the crisis, Social expenditure (SOCX) data update 2012

http://www.oecd.org/els/soc/OECD2012SocialSpendingDuringTheCrisis8pages.pdf

4) Financing government Taxes (Feb 2, 4, & 9)

a. Characteristics of a good tax system

b. Incidence

Jospeh J. Minarik, Taxation, The Concise Encyclopedia of Economics, Library of Economics and Liberty.

http://www.econolib.org/library/Enc/Taxation.html

IMF, Guidelines for Fiscal Adjustment, Pamphlet No. 49. Sections on Characteristics of a Desirable Tax System and Design of Major Taxes http://www.imf.org/external/pubs/ft/pam/pam49/pam4904.htm

Mark Burton and Miranda Stewart, Promoting Budget Transparency through Tax Expenditure Management, June 2011. Chapter 1, Section 2.4 of Chapter 2, Table 3.2

http://internationalbudget.org/wp-content/uploads/Promoting-Budget-Transparency-Through-Tax-Expenditure-Management.pdf

James M. Bickley, Value-Added Tax (VAT) as a Revenue Option: A Primer, March 22, 2011

http://assets.opencrs.com/rpts/R41708_20110322.pdf

Kurt Wise and Noah Berger, Understanding our Tax System: A Primer for Active Citizens, Massachusetts Budget and Policy Center. Chapter One on the Five Criteria and the first couple of paragraphs in the chapters on major tax categories.

http://massbudget.org/report_window.php?loc=Tax_Primer_83110.html

OPTIONAL

Jonathan Z. Ackerman and Rosanne Altshuler, Constrained Tax Reform: How Political and Economic Constraints Affect the Formation of Tax Policy Proposals, National Tax Journal, March 2006. Skim. Highlights difficulties of tax reform.

http://ntj.tax.org/wwtax/ntjrec.nsf/651BE8FD156C29A18525715E005A19C2/$FILE/Article%2007-Ackerman%20(F).pdf

OPTIONAL

James Poterba, The Challenge of Tax Reform and Expanding the Tax Base, Geary Lecture 2009, The Economic and Social Review, Summer 2010.

www.esri.ie/UserFiles/publications/jacb201065/GLS38.pdf

MIDTERM EXAM ON FEB 11 (in class)

5) Economic and financial stabilization (Feb 23 & 25)

a. What is fiscal policy?

b. Automatic stabilizers

c. Discretionary fiscal policy

d. Fiscal vs. monetary policy

Alan J. Auerbach, William G. Gale and Benjamin Harris, Activist Fiscal Policy, Journal of Economic Perspectives, Fall 2010. Pages 141-145 and 158-159.

http://www.urban.org/UploadedPDF/1001481-Activist-Fiscal-Policy.pdf

Douglas W. Elmendorf and Jason Furman, If, When, How: A Primer on Fiscal Stimulus, The Hamilton Project. January 2008.

http://www.brookings.edu/~/media/research/files/papers/2008/1/10%20fiscal%20stimulus%20elmendorf%20furman/0110_fiscal_stimulus_elmendorf_furman.pdf

Renee Courtois, What we do and dont know about discretionary fiscal policy, Economic Brief, April 2009.

http://www.richmondfed.org/publications/research/economic_brief/2009/pdf/eb_09-04.pdf

Richard W. Kopcke, Geoffrey M.B. Tootell, and Robert K. Triest, Introduction: The Macroeconomics of Fiscal Policy, Conference Series 49 (June 2004.) Pages 3-10 and 20. Optional: skim balance.

http://www.bostonfed.org/economic/conf/conf49/introduction.pdf

CBO, The effects of automatic stabilizers on the Federal Budget as of 2013, March 2013. You should look at the complete document as well.

http://www.cbo.gov/publication/43977

6) Debt financing (Mar 2 & 4)

a. Why resort to debt financing?

b. Does it matter?

c. Lessons from emerging countries

Rebecca M. Nelson, Sovereign Debt in Advanced Economies: Overview and Issues for Congress, Congressional Research Service, January 31, 2013, especially pages 8 11 and appendix.

http://www.fas.org/sgp/crs/misc/R41838.pdf

Stephen Cecchetti, MS Mohanty and Fabrizio Zampoli, The future of public debt: prospects and implications BIS Working Papers, No 300, March 2010, especially section after p.6 on the future

http://www.bis.org/publ/work300.pdf

Barry Eichengreen, Robert Feldman, Jeffrey Liebman, Jurgen von Hagen and Charles Wyplosz, Public Debts: Nuts, Bolts and Worries. Geneva Reports on the World Economy 13, September 2011. Summary and sections 2.1 and 2.2 of Chapter 2.

http://www.voxeu.org/sites/default/files/file/Geneva13.pdf

CBO, The 2012 Long-term Budget Outlook, June 2012. Summary and Chapter 1

http://www.cbo.gov/sites/default/files/cbofiles/attachments/06-05-Long-Term_Budget_Outlook_2.pdf

Thomas Herndon, Michael Ash and Robert Pollin, Does High Public Debt consistently Stifle Economic Growth? A Critique of Reinhart and Rogoff April 2013

http://www.peri.umass.edu/fileadmin/pdf/working_papers/working_papers_301-350/WP322.pdf

Response

http://blogs.wsj.com/economics/2013/04/16/reinhart-rogoff-response-to-critique/

7) Sources of current and projected high debt levels (Mar 9 & 11)

a. Impact of financial crisis

b. Long-term challenges

Joseph E. Gagnon with Marc Hinterschweiger, The Global Outlook for Government Debt over the Next 25 Years: Implications for the Economy and Public Policy, Peterson Institute for International Economics, June 2011

IMF, Fiscal Monitor: Addressing Fiscal Challenges to Reduce Economic Risks, September 2011.

www.imf.org/external/pubs/ft/fm/2011/02/pdf/fm1102.pdf

Box 6, p. 26.

If time permits:

Glenn Hubbard and Tim Kane, Regaining Americas Balance, National Affairs http://www.nationalaffairs.com/publivations/detail/print/regaining-americas-balance

If you are interested in knowing more about the demographic changes that pose difficult future challenges, see below.

Jane Sneddon Little and Robert Triest, Seismic Shifts: The Economic Impact of Demographic Change, June 2001.

The conference volume discusses fiscal (and other) implications of population change. Most relevant to the effects of population aging in advanced countries are the papers and comments below:

David Weil (especially Economic Lessons)

Joel Cohen (pages 96-104)

Paul Atkinson (pages 230-236)

http://www.bos.frb.org/economic/conf/conf46/index.htm

SHORT ESSAY DUE MAR 16

8) Sustainability (Mar 16 & 18)

a. What is a sustainable debt level?

b. Role of financial markets

c. Inflation as an answer

d. Default as an answer

e. Experience of developing countries

Note: Formulas for sustainability are slightly different in some of the articles, but key points are the same and the numerical results are almost identical. Some formulas assume the primary balance is a deficit and adds to debt; some assume the balance is a surplus and debt-reducing.

Silvio Contessi, An Application of Conventional Sovereign Debt Sustainability Analysis to the Current Debt Crises Federal Reserve Bank of St. Louis Review, May/June 2012

http://research.stlouisfed.org/publications/review/12/05/197-220Contessi.pdf

Focus on general discussion and circumstances of individual countries. For derivation of formula for sustainability see p. 202 and equation 16 (p.212.)

Willem Buiter and Ebrahim Rahbari, Debt of Nations, November 2012.

http://gallery.mailchimp.com/828d68d00a72b1ccb86169728/files/5849656_w_buiter_the_debt_crisis_1_.pdf

Chapter 4 and Chapter 7 (default.)



Pages 21 -34.

IMF, The Good, the Bad, and the Ugly: 100 Years of dealing with public debt overhangs, World Economic Outlook: Coping with High Debt and Sluggish Growth, October 2012. http://www.imf.org/external/pubs/ft/weo/2012/02/pdf/c3.pdf

Optional:

European Commission, Fiscal Sustainability Report, 2012, European Economy 8/2012. Read the Executive Summary and Chapter 2.

http://ec.europa.eu/economy_finance/publications/european_economy/2012/pdf/ee-2012-8_en.pdf

9) Reining in deficits and smoothing spending (Mar 23 & 25)

a. Constitutional limitations

i. U.S. states

b. paygo laws and other fiscal rules

c. budget institutions

d. rainy day funds

C. Randall Henning and Martin Kessler, Lessons for Europes fiscal union from U.S. federalism, VOX, January 25, 2012. Discusses whether U.S. states limits on deficits are relevant to Europe.

http://www.voxeu.org/article/europe-s-fiscal-union-lessons-us-federalism

The full article on which these comments are based is very interesting and somewhat clearer than the blog: C. Randall Henning and Martin Kessler, Fiscal Federalism: U.S. History for Architects of Europes Fiscal Union, January 2012.

www.petersoninstitute.org/publications/wp/wp12-1.pdf

Barry Eichengreen, Robert Feldman, Jeffrey Liebman, Jurgen von Hagen and Charles Wyplosz, Public Debts: Nuts, Bolts and Worries, Geneva Reports on the World Economy 13, September 2011. Skim Chapters 1 and 2.


IMF team led by Xavier Debrun, The Functions and Impact of Fiscal Councils, July 16, 2013

http://www.imf.org/external/np/pp/eng/2013/071613.pdf


http://www.imf.org/external/pubs/ft/fm/2013/01/pdf//fm1301.pdf

Box 1, p.35

Andrea Schaechter, Tidiane Kinda, Nina Budina, and Anke Weber, Fiscal Rules in Response to the Crisis Toward the Next-Generation Rules. A new Dataset. IMF Working Paper WP/12/187. Look at pages 6 10.

http://www.imf.org/external/pubs/ft/wp/2012/wp12187.pdf

Bipartisan Policy Center, Save-as-you-Go (SAVEGO)

http://www.Bipartisanpolicy.org/projects/economic-policy-project/savego

Example of a set of policy rules.

ITEP, A Primer on State Rainy Day Funds, Policy Brief # 25, 2005

www.itep.org/pdf/pb25rdf.pdf

Optional:

Frank Marty and Martin Weder, Debt brake: a mechanism for sustainable success, Dossierpolitik, September 10, 2012

www.economiesuisse.ch/en/Documents/dp18_Schuldenbremse_e_web.pdf

Description of how the Swiss debt brakes work. Relatively short and straightforward.

Optional:

Joseph Henchman, Trend #8: Insufficient Rainy Day Funds, Tax Foundation, June 5, 2012

http://Taxfoundation.org.article/trend-8-insuficient-rainy-day-funds

Optional:

Erling Steigum, Sovereign Wealth Funds for Macroeconomic Purposes, BI Norwegioan Business School, Working Paper Series 4/12, December 2012

www.bi.edu/cmefiels/Working%20paper%202012%2004%20combined%20v2.pdf

10) Austerity-stimulus debate and discussion of multipliers (Mar 30)

The Auerbach, Gale and Harris article is probably the most important. The Box in the IMFs October 2012 Global Prospects and Policies has gotten a lot of attention. Alesinas work, summarized in the voxeu piece, has also received considerable attention.

Alan J. Auerbach, William G. Gale and Benjamin Harris, Activist Fiscal Policy, Journal of Economic Perspectives, Fall 2010. Especially pages 141-145 and 158-159. If you are interested in how different models produce different results, see pages 148 152.

http://www.urban.org/UploadedPDF/1001481-Activist-Fiscal-Policy.pdf

Jeffrey Frankel, Monetary alchemy, fiscal science, VOX, January 29, 2013

http://www.voxeu.org/article/monetary-alchemy-fiscal-science

Richard Hemming, Michael Kell, and Selma Mahfouz, The Effectiveness of Fiscal Policy in Stimulating Economic Activity A Review of the Literature, IMF Working Paper, December 2002.

http://www.imf.org/external/pubs/ft/wp/2002/wp02208.pdf

Look at the theoretical section (pages 3 11) and skim the multiplier estimates.

IMF, Global Prospects and Policies, October 2012, Box 1.1 Are We Underestimating Short-Term Fiscal Multipliers? p.41

ww.imf.org/external/pubs/ft/weo/2012/02/pdf/c1.pdf

Olivier Blanchard and Daniel Leigh expand upon their analysis in the paper below, but the box has the main points.

Growth Prospects and Fiscal Multipliers, January 2013.

www.imf.org/external/pubs/ft/wp/2013/wp1301.pdf.

Alberto Alesina, Cut deficits by cutting spending, VOX, November 2012, http://www.voxeu.org/article/cut-deficits-cutting-spending.

Optional:

Menzie Chinn, Fiscal Multipliers, February 23, 2012.

This is fairly academic but short and covers key issues.

Optional:

Valerie A. Ramey, Can Government Purchases Stimulate the Economy, June 14, 2011. http://weber.ucsd.edu/~vramey/research/JEL_Fiscal_14June2011.pdf

This is quite academic. I included it because she highlights how different the multiplier mechanisms are in different modeling approaches. Neoclassical models assume very different effects from traditional Keynesian models; http://www.pewtrusts.org/uploadedFiles/wwwpewtrustsorg/Fact_Sheets/Economic_Policy/drivers_federal_debt_since_2001.pdfNew Keynesian DSGE models may have elements of both.

Optional:

Brad DeLong and Larry Summers, Fiscal Policy in a Depressed Economy, 2012

http://www.brookings.edu/~/media/files/programs/es/bpea/2012_spring_bpea_papers/2012_spring_bpea_delongsummers.pdf

11) Focus on Japan (Apr 1)

Class discussion focused on recommendations

a) Sources of problem

b) Outlook

c) Recommendations

Make sure to read Jones and Urasawa.

Jones, Randall S. and Satoshi Urasawa, Restoring Japans Fiscal Sustainability, (2013) OECD Economics Department Working Papers No.1050

http://dx.doi.org/10.1787/5k46cvtkbf33-en

This is very informative. You can read this online but not download.

Econbrowser, How long can Japanese bond prices defy gravity? August 12, 2012

www.econbrowswer.com/archives/2012/08/how-long-can-ja.html

Summarizes key points in the following:

Hoshi, Takeo and Takatoshi Ito, Defying Gravity: Can Japanese sovereign debt continue to increase without a crisis? March 2013

https://cama.crawford.anu.edu.au/amw2013/doc/DefyingGravityEconomicPolicy20130317.pdf

Posen, Adam, Japan Should Re-think its Fiscal Stimulus, Op-ed in Financial Times, January 15, 2013

http://www.piie.com/publications/opeds/oped.cfm?ResearchID=2314

Rimkus, Ron, The Japanese Debt Crisis: Has Japan Passed the Point of No Return? Enterprising Investor, April 2012

http://blogs.cfainstitute.org/investor/2012/04/19/the-japanese-debt -crisis-has-japan-passed-the-point-of-no-return/

IMF, World Economic Outlook: The Good, the Bad, and the Ugly: 100 Years of Dealing with Public Debt Overhangs, October 2012.

Section on Japan, pp. 114- 115

http://www.imf.org/external/pubs/ft/weo/2012/02/pdf/c3.pdf

12) Focus on Europe (Apr 13 & 15)


a. Sources of problem

b. Implications of common currency

c. Outlook

d. Recommendations

OECD, Restoring Public Finances, 2011 and 2012 include information on what individual countries have done to reduce deficits. The 2011 volume is somewhat more clearly organized and can be downloaded; so I suggest looking at it first and then looking at the 2012 update. The link below is for the 2011 volume.

http://www.oecd.org/gov/budgeting/47558957.pdf

European Commission, Fiscal Sustainability Report, 2012, European Economy 8/2012. Read the Executive Summary and several of the individual country analyses, which include debt projections to 2030. Skim chapters 1 and 2 and some of the data tables in chapter 3. Look at section 4.2.8 of Chapter 4.

http://ec.europa.eu/economy_finance/publications/european_economy/2012/pdf/ee-2012-8_en.pdf

Barry Eichengreen, Robert Feldman, Jeffrey Liebman, Jurgen von Hagen and Charles Wyplosz, Public Debts: Nuts, Bolts and Worries. Geneva Reports on the World Economy 13, September 2011. Chapter 4.


Daniel Gros, Europes misguided search for growth, May 7, 2012

http://www.project-syndicate.org/commentary/europe-s-misguided-search-for-growth

Daniel Gros, Has Austerity Failed in Europe, August 14, 2013

http://www.project-syndicate.org/commentary/how-austerity-has-helped-the-eurozone-periphery-by-daniel-gros

Both pieces are short and interesting.

Frank Marty and Martin Weder, Debt brake: a mechanism for sustainable success, Dossierpolitik, September 10, 2012

www.economiesuisse.ch/en/Documents/dp18_Schuldenbremse_e_web.pdf

Description of how the Swiss debt brakes work. Relatively short and straightforward.

Optional:

European Commission, 2013 Report on Public Finances in the EMU. Part 1, Chapter 1, Chapter 2.

http://ec.europa.eu/economy_finance/publications/european_economy/2013/pdf/ee-2013-4-01.pdf

This is hard-going (very detailed.) However, it provides an indication of how the EU tries to impose fiscal discipline and sections 2.2.2.4 through 2.2.2.6 show how far countries are from sustainability. (Reference in the text to Graph 1.2.11 is really to Graph 1.2.10.) The Annex provides some general information about individual countries.

LONGER PAPER DUE FRIDAY APR 17

13) Focus on the United States (Apr 20 & 22)


a. Sources of problem

b. Outlook

c. Recommendations

Make sure you read The Solutions Initiative, at least through p. 21. Also look at the CBO publications.

The Solutions Initiative, Sponsored by the Peter G. Peterson Foundation, 2011 Fiscal Summit. Read at least through p. 23.

http://www.pgpf.org/sites/default/files/sitecore/media%20library/PGPF/Media/PDF/2011/FiscalSummit_2011/2011%20Fiscal%20Summit%20Book.pdf

CBO, Options for Reducing the Deficit: 2014 to 2023, November 2013

www.cbo.gov/publication/44715.

Read pages 2- 8 and the introductions (trends sections) to chapters 2 through 5. Note how small most of the suggested options are compared to the projected deficit.

CBO, The 2013 Long-Term Budget Outlook, September 2013.

www.cbo.gov/sites/default/files/cbofiles/attachments/44521-LTBO2013_0.pdf

Read the Summary, pages 1-5, Chapter 1 pages 10 and 11 and the Box 1-1. Also Chapter 6, Table 6-1.

Moment of Truth Project, A Bipartisan Path Forward to Securing Americas Future, April 2013. Follow up to Simpson-Bowles Commission.

http://www.momentoftruthproject.org/sites/default/files/Full%20Plan%20of%20Securing%20America's%20Future.pdf

Original report is rather long and detailed:

The National Commission on Fiscal Responsibility and Reform, The Moment of Truth, December 2010

Center for a Responsible Federal Budget, Our Debt problems are Far from Solved, Updated February 11, 2013

http://crfb.org/document/report-our-debt-problems-are-far-solved

and update May, 2013

http://crfb.org/document/report-our-debt-problems-are-still-far-solved

Center for a Responsible Federal Budget, What we expect from upcoming fiscal discussions, May 30, 2013

http://crfb.org/document/report-what-we-expect-upcoming-fiscal-discussions

What contributed to the increase in debt and deficits since 2001:

Kathy A. Ruffing and Joel A. Friedman, Economic Downturn and Legacy of Bush Policies Continue to Drive Large Deficits, Center on Budget and Policy Priorities, Updated February 28, 2013

http://www.cbpp.org/files/10-10-12bud.pdf

and

Pew Fiscal Analysis Initiative, The Great Debt Shift: Drivers of Federal Debt Since 2001, The Pew Charitable Trusts.

http://www.pewtrusts.org/uploadedFiles/wwwpewtrustsorg/Fact_Sheets/Economic_Policy/drivers_federal_debt_since_2001.pdf

Optional: Marc Labonte and Andrew Hanna, The Impact of Major Legislation on Budget Deficits: 2001 to 2009, March 23, 2010

www.fas.org/sgp/crs/misc/R41134.pdf

Contributions to recent increases in U.S. deficits. Look at tables 1, 2 and 3. Skim the rest. (The CBPP and Pew references provide a shorter analysis of this issue.)

Glenn Hubbard and Tim Kane, Regaining Americas Balance, National Affairs, Winter 2013.

http://www.nationalaffairs.com/publications/detail/regaining-americas-balance

Alan J. Auerbach, Long-term fiscal sustainability in major economies, BIS Working Papers, No 361, November 2011. Section on U.S. (pp. 2-5)

http://www.bis.org/publ/work361.htm



Box 5, p. 42

Barry Eichengreen, Robert Feldman, Jeffrey Liebman, Jurgen von Hagen and Charles Wyplosz, Public Debts: Nuts, Bolts and Worries. Geneva Reports on the World Economy 13, September 2011. Chapter 3 and Sections 6.4 and 6.6.1.


Testimony by Sen. Pete V. Domenici and Dr. Alice Rivlin to the Joint Select Committee on Deficit Reduction, U.S. congress, November 1, 2011

http://www.brookings.edu/~/media/research/files/testimony/2011/11/01%20deficit%20committee%20domenici%20rivlin/1101_deficit_committee_domenici_rivlin.pdf

Other Resources

For sources of the problem, look at

Nate Silver, What is Driving Growth in Government Spending, Five Thirty Eight, January 16, 2013, for historic spending trends.

http://fivethirtyeight.blogs.nytimes.com/2013/01/16/what-is-driving-growth-in-government-spending/?_r=0

International Monetary Fund, From Stimulus to Consolidation: Revenue and Expenditure Policies in Advanced and Emerging Economies, Prepared by Fiscal Affairs Department, April 30 2010

http://www.imf.org/external/np/pp/eng/2010/043010a.pdf

Data for many different countries on current and projected expenditures and current taxes.

14) Final class (April 27)

Group discussion of effectiveness of institutional reforms such as fiscal rules and fiscal councils.

Opportunity to raise questions and outstanding issues.

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