The role of fiscal policy in short-run macroeconomic stabilization is, by now, well known in the academic literature and in policy circles. However, this focus on the short-run, especially in a democracy, means that much less attention has been paid to the other consequences of the use of fiscal policy. By studying the intergenerational-welfare aspects of fiscal policy, this book deals with some fundamental issues of fiscal policy. Why does public debt tend to rise over time in democracies? Why is there a tendency for government spending on consumption and on social security to grow? Why do governments fail to invest in public capital adequately? Should a dollar transferred from the young be treated as a dollar transferred to the old? By studying the international aspects of fiscal policy, the book establishes international differences in fiscal policy as determinants of persistent trade imbalances and international indebtedness. It also considers some basic questions on international transfers and austerity in open economies. What criteria should be used to define a successful foreign-aid programme? Why is foreign aid likely to fail in a world of global wealth disparity? Can reliance be placed on the international coordination of austerity to improve welfare in the long run? Is austerity accompanied by international transfers superior to austerity unaccompanied by international transfers?
This book based on the OLG model fills a gap on fiscal-policy issues in the recent spate of books on overlapping generations.
"Economists have, in recent years, attributed the depressed economic conditions we are facing in the world to hysteresis, which is regarded as the permanent effect of fiscal consolidations after the global recession of 2008-2009. Tan Kim Heng’s book is timely and has significant contributions to this discussion because he forges an important link between fiscal consolidations and weakening future potential output in developed economies: spending on public investment, which is not a vote-enhancing policy instrument, always gives way to other forms of government spending." —CHEN Kang, Professor, Lee Kuan Yew School of Public Policy, the National University of Singapore
2. Modelling a Closed Economy
3. Equilibrium Analysis
4. Public Debt
5. Government Consumption
6. Public Investment
7. Social Security
8. Modelling Open Economies
9. Trade Imbalance Story
10. Welfare Economies of Foreign Aid
11. Welfare Economies of Austerity in Open Economies