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Since a typical regulatory mandate can be equated in its economic effect to a combination of an expenditure program and a tax program, observers have often suggested that it would serve consistent public policy to bring regulatory decisions into the same budgetary framework. This paper concerns an important example of a regulatory program that would mimic deficit financing in effecting a transfer of fiscal burdens toward younger and future generations, the mandated purchase of (or provision by employers of) health care insurance under a system of community rating, under which the same price is charged for health insurance for all comers, regardless of age, sex, or health condition. Such a shift would result in redistributions of burdens across birth cohorts, in this case from existing, especially middle-aged birth cohorts toward future generations. Using data from a variety of sources we conclude the effect would be substantial. For our central-case assumptions about discount, health care cost, and productivity growth rates, and about the locus of responsibility for paying health care bills, a shift to community rating is estimated to generate gains for people over age 30 in 1994, $16,700 per person aged 50 for example, at the cost to younger cohorts. Those born in 1994 would acquire an extra payment obligation with a discounted value of $7,100 each. The burden passed along to future generations can be described by a $9,300 per capita tax at birth (growing with productivity). The analysis makes clear that the regula- tory policy shift, with no direct budgetary implications, would have an intergenerational transfer effect comparable to what would be considered a major change in on-budget tax or transfer programs.

Budget deficits.

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This paper investigates the implications of government deficits in an overlapping generations consumption loan model with longterm assets. The only asset in the economy is a real consol issued by the government and serviced by lumpsum taxes on the young. We explore here the time path of short and longterm interest rates following the announcement of a future,transitory budget deficit under two alternative assumptions. In one case the deficit arises from transitory government spending, in the other case from a transfer.We show that a deficit policy ultimately raises longterm interest rates and lowers consol prices. The exact shape of the path of short-term rates depends on the source of the deficit and on the saving response to interestrates. In general, though, the term structure will be v-shaped. The interest of the model resides in the fact that the prices of longterm assets link the current generations to future disturbances. Because future disturbances affect future interest rates they affect the current value of debt outstanding and hence equilibrium short-term rates. The exact manner in which the disturbances are transmitted to prior periods depends on the extent to which consumers substitute easily across time or, on the contrary, have a strong preference for consumption smoothing.

Budget deficits.

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Somemacroeconomic effects of deficit targeting are estimated in thispaper using my U.S. econometric model. The response of the economy to realand price shocks is examined in a number of cases. Each case corresponds toa particular assumption about fiscal policy and a particular assumptionabout monetary policy. Estimates are also presented of the size of thegovernment spending cuts that are needed to meet a given deficit goal underdifferent assumptions about monetary policy.

Budget deficits.

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The historical behavior of interest rates and growth rates in U.S. data suggests that the government can, with a high probability, run temporary budget deficits and then roll over the resulting government debt forever. The purpose of this paper is to document this finding and to examine its implications. Using a standard overlapping-generations model of capital accumulation, we show that whenever a perpetual rollover of debt succeeds, policy can make every generation better off. This conclusion does not imply that deficits are good policy, for an attempt to roll over debt forever might fail. But the adverse effects of deficits, rather than being inevitable, occur with only a small probability.

Budget deficits.

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By discussing the available theoretical and empirical literature, this paper argues that budget procedures and budget institutions do influence budget outcomes. Budget institutions include both procedural rules and balanced budget laws. We critically assess theoretical contributions in this area and suggest several open and unresolved issues. We also examine the empirical evidence drawn from studies on samples of OECD countries, Latin American countries and US states.

Budget deficits.