Public debt stabilization: the relevance of policymakers’ time horizons

Bartolomeo, Giovanni Di; Pietro, Marco Di; Saltari, Enrico; Semmler, Willi

doi:10.1007/s11127-018-0584-7

Cited by 13 publications

(12 citation statements)

References 55 publications

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“…Thus, government collectively fails to internalize the future cost of present programs and leaves debts to the coming government when it expects to lose an election (Alesina & Tabellini, 1990; Di Bartolomeo et al, 2018). In a federal system, Weingast et al (1981, p. 643) demonstrate that legislative decisions to fund programs, where benefits are concentrated on an electoral district while costs are dispersed across districts, result in a higher level of government spending than is economically optimal.…”

Section: Political Incentives To Government Spendingmentioning

confidence: 99%

When Push Comes to Shove: The Effect of Economic Crisis on the Spending of Government Savings

Kim

Park

2021

International Journal of Public Administration

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This study explores whether and how an economic crisis affects the spending of government savings by focusing on its political-economic benefit. Despite a great deal of discussion about the government's tendency toward more spending, relatively few studies have attempted to identify the conditions that can reverse the tendency. Using data from 254 California cities during 1996-2009, this study finds a regular U-shape relationship between unemployment rates and government savings. Savings decrease until the unemployment rate reaches almost double digits (9.9%) and begin to recover after this point. The results suggest that an economic crisis curbs the spending tendency by modifying the incentives of legislators. This study contributes to public administration research by explaining local government savings and its delayed responses to a crisis from a political-economic perspective.

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Section: Political Incentives To Government Spendingmentioning

confidence: 99%

When Push Comes to Shove: The Effect of Economic Crisis on the Spending of Government Savings

Kim

Park

2021

International Journal of Public Administration

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“…They show that information exchange between policy makers can be welfare improving if the social loss function is a concave combination of the policymakers’ loss functions. Finally, Di Bartolomeo, Saltari, and Semmler () use NMPC to model a nonlinear debt‐stabilization game based on endogenous risk premia on fiscal debt. They model a noncooperative scenario with a core country, a periphery country, and a central bank in a three player game.…”

Section: Modeling a Cooperative Solutionmentioning

confidence: 99%

“…Their loss functions take economic, financial, and fiscal stability into account. Di Bartolomeo, Saltari, and Semmler () show that a cooperative game is superior to a noncooperative game with respect to fiscal debt stabilization. They also demonstrate that a short decision horizon of policy makers is inferior compared to a long decision horizon for debt stabilization.…”

Section: Modeling a Cooperative Solutionmentioning

confidence: 99%

“…Our model is similar to the approach by Di Bartolomeo, Saltari, and Semmler (). However, we model a cooperative solution to the three player problem, which yields superior results compared with the noncooperative solution.…”

Section: Modeling a Cooperative Solutionmentioning

confidence: 99%

“…We restrict ourselves to a numerical solution for the cooperative game. A sketch of an analytical solution of those types of models is given in Di Bartolomeo, Saltari, and Semmler ().…”

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confidence: 99%

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Cooperative Monetary and Fiscal Policies in the Euro Area

Semmler

Haider

2018

Southern Economic Journal

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This article discusses the interaction of fiscal and monetary policy in the euro area. Though many observers suggest a fiscal union as the next step of euro‐area constitutional reform, a federal fiscal union does not appear politically feasible in the short run. We suggest moving forward with cooperative monetary and fiscal institutions and policies that allow for decentralized fiscal decisions, while taking federal stabilization policies into account. This approach will increase the probability of survival of the euro area compared with the current fiscal arrangements. Using a dynamic macro model, counterfactual simulation paths of our cooperative solution are contrasted with time‐series data for the euro area.

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The Effects of Political Short-Termism on Transitions Induced by Pollution Regulations

Bartolomeo

Saltari

Semmler

2020

Dynamic Modeling and Econometrics in Economics and Finance

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We study the dynamic problem of pollution control enacted by some policy of regulation and mitigation. The dynamics of the transition from one level of regulation and mitigation to another usually involves inter-temporal trade-offs. We focus on how different policymaker's time horizons affect these trade-offs. We refer to shorter lengths in policymaker's time horizons as political short-termism or inattention, which is associated with political economy or information constraints. Formally, inattention is modeled by using Nonlinear Model Predictive Control. Therefore, it is a dynamic concept: our policymakers solve an inter-temporal decision problem with finite horizon that involves the repetitive solution of an optimal control problem at each sampling instant in a receding horizon fashion. We find that political shorttermism substantially affects the transition dynamics. It leads to quicker, but costlier, transitions. It also leads to an under-evaluation of the environmental costs that may accelerate climate change. * The authors are grateful for comments from Bas van Aarle, Marco Di Pietro, Francesco Forte, Behnaz Minooei Fard, and Joseph Plasmans. They also authors acknowledge financial support by Sapienza University of Rome. An earlier version of this paper has been circulated under the title "Inattention, and pollution regulation policies." 1 See Spengler and Sexton (1983) and Gallegati et al. (2017) for the nexus of economic growth, C02 emission and global temperature rise. For the nexus of CO2 emission, climate disasters and adaptation policies, see Mittnik et al. (2018). 2 Orlov et al. (2018 show that indeed the agents in the short run, the current generation, might face some welfare losses, as compared to business-as usual, but in the long run, for future generations, there can also be some gains, since increases in temperature and damages are avoided.

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Public debt stabilization: the relevance of policymakers’ time horizons

Cited by 13 publications

References 55 publications

When Push Comes to Shove: The Effect of Economic Crisis on the Spending of Government Savings

When Push Comes to Shove: The Effect of Economic Crisis on the Spending of Government Savings

Cooperative Monetary and Fiscal Policies in the Euro Area

The Effects of Political Short-Termism on Transitions Induced by Pollution Regulations

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