The welfare effects of inflation: a cost-benefit perspective

This paper reviews theory and evidence of the welfare effects of inflation from a costbenefit perspective. Basic models and selected empirical results are discussed. Historically, in assessing the welfare effects of inflation, the distortion of money demand played a prominent role. More recently, interactions of inflation and taxation came into focus. Growth effects of inflation as well as welfare effects of unanticipated inflation and of inflation uncertainty are also addressed. To assess the policy question whether inflation should be reduced or eliminated, the costs of disinflation play a role. Finally, the trade-off between the benefits of reducing inflation and the costs of disinflation is discussed and an overall assessment of the net welfare effects of achieving price stability is provided. --Inflation,price stability,welfare costs and benefits,distortions,money demand,consumption allocation,tax-inflation interaction

The long-term sustainability of public finance in Germany: an analysis based on generational accounting

This paper analyses the sustainability of German public finance between 1996 and 2000 using a generational accounting approach. In contrast to previous studies based on generational accounting, the results are adjusted for cyclical and other temporary effects. This reduces the impact of exceptional factors obtaining in the base year and enhances the comparability of the results over time. First, a "status quo scenario" is considered as a comparatively transparent basis for assessing fiscal policy in the base year. In this setting it is assumed that the fiscal conditions obtaining in the base year will prevail in future years, too. Second, to obtain a more realistic picture of the real need for further fiscal policy action, a "policy scenario" is developed which includes already agreed measures that will take (full) effect only in the future. It is argued that, despite a substantial improvement in public finance in the second half of the 1990s, a sizeable sustainability gap persisted in 2000 under both scenarios. This is mainly due to the unfavourable demographic development, the consequences of which for government budgets are only partly compensated by the assumed catching-up of eastern Germany. In each of the years considered, already agreed measures taking effect in the future improved the sustainability of public finance on balance. Thus in each year the sustainability gap was narrower under the policy scenario than under the status-quo scenario. -- In diesem Papier wird mit Hilfe der Generationenbilanzierung die Entwicklung der Tragfähigkeit der öffentlichen Haushalte in Deutschland von 1996 bis 2000 untersucht. Im Gegensatz zu bisherigen Studien zur Generationenbilanzierung wird eine Bereinigung um konjunkturelle und andere temporäre Einflüsse vorgenommen. Auf diese Weise wird die Abhängigkeit der Ergebnisse von Sonderfaktoren des Basisjahres verringert und somit die zeitliche Vergleichbarkeit der Ergebnisse erhöht. Als vergleichsweise transparente Grundlage für die Beurteilung der Finanzpolitik des Basisjahres wird zunächst ein ?Statusquo- Szenario? betrachtet, in dem die im Basisjahr beobachteten finanzpolitischen Bedingungen auch für zukünftige Jahre konstant gehalten werden. Um den noch bestehenden Handlungsbedarf realistischer abschätzen zu können, wird daneben auch ein ?Politikszenario? analysiert. In diesem werden im Basisjahr bereits beschlossene, aber noch nicht (voll) wirksame politische Maßnahmen berücksichtigt. Es zeigt sich, dass trotz einer deutlichen Verbesserung der öffentlichen Finanzen in der zweiten Hälfte der neunziger Jahre auch im Jahr 2000 in beiden Szenarien noch eine beträchtliche Tragfähigkeitslücke bestand. Ausschlaggebend hierfür ist die ungünstige demographische Entwicklung, deren Folgen für die öffentlichen Finanzen durch den unterstellten Aufholprozess in Ostdeutschland nur teilweise kompensiert werden. Im Basisjahr bereits beschlossene, aber erst zukünftig wirksam werdende Maßnahmen verbessern die Tragfähigkeit der öffentlichen Finanzen per saldo in allen betrachteten Jahren, so dass die Tragfähigkeitslücke im Politikszenario generell niedriger liegt als im Status-quo-Szenario.

Kinderlastenausgleich versus verstaerkte Einwanderung

Die Arbeit befaßt sich mit den Finanzierungsproblemen, die durch die prognostizierte Bevölkerungsentwicklung für die Gesetzliche Rentenversicherung entstehen. Zunächst wird herausgearbeitet, daß nur Instrumente, die an den demographischen Ursachen der Finanzierungsprobleme ansetzen, eine wirkliche Reduzierung der Lasten bewirken können. Hier bieten sich eine Erhöhung des Kinderlastenausgleichs und eine verstärkte Einwanderung an. Als Ergebnis einer Wirkungsanalyse des Kinderlastenausgleichs auf der Basis der neoklassischen Fertilitätstheorie wird eine Aufstockung der Mittel um gut 70.000 DM pro Kind für erforderlich gehalten, um den Beitragssatz im Jahr 2030 gegenüber einem laissez-faire Szenario um 1,5 Prozentpunkte zu senken. Durch eine verstärkte Einwanderung ließe sich die gleiche Beitragssatzreduzierung kostengünstiger erreichen

Fiscal sustainability and policy implications for the euro area

In this paper we examine the sustainability of euro area public finances against the backdrop of population ageing. We critically assess the widely used projections of the Working Group on Ageing Populations (AWG) of the EU's Economic Policy Committee and argue that ageing costs may be higher than projected in the AWG reference scenario. Taking into account adjusted headline estimates for ageing costs, largely based upon the sensitivity analysis carried out by the AWG, we consider alternative indicators to quantify sustainability gaps for euro area countries. With respect to the policy implications, we assess the appropriateness of different budgetary strategies to restore fiscal sustainability taking into account intergenerational equity. Our stylised analysis based upon the lifetime contribution to the government's primary balance of different generations suggests that an important degree of pre-funding of the ageing costs is necessary to avoid shifting the burden of adjustment in a disproportionate way to future generations. For many euro area countries this implies that the medium-term targets defined in the context of the revised stability and growth pact would ideally need to be revised upwards to significant surpluses.population ageing, fiscal sustainability, generational accounting, medium-term objectives for fiscal policy

Fiscal sustainability and policy implications for the euro area

In this paper we examine the sustainability of euro area public finances against the backdrop of population ageing. We critically assess the widely used projections of the Working Group on Ageing Populations (AWG) of the EU's Economic Policy Committee and argue that ageing costs may be higher than projected in the AWG reference scenario. Taking into account adjusted headline estimates for ageing costs, largely based upon the sensitivity analysis carried out by the AWG, we consider alternative indicators to quantify sustainability gaps for euro area countries. With respect to the policy implications, we assess the appropriateness of different budgetary strategies to restore fiscal sustainability taking into account intergenerational equity. Our stylised analysis based upon the lifetime contribution to the government's primary balance of different generations suggests that an important degree of pre-funding of the ageing costs is necessary to avoid shifting the burden of adjustment in a disproportionate way to future generations. For many euro area countries this implies that the medium-term targets defined in the context of the revised stability and growth pact would ideally need to be revised upwards to significant surpluses. JEL Classification: H55, H60Fiscal sustainability, generational accounting, mediumterm objectives for fiscal policy, Population ageing

Fiscal sustainability and policy implications for the euro area

In this paper we examine the sustainability of euro area public finances against the backdrop of population ageing. We critically assess the widely used projections of the Working Group on Ageing Populations (AWG) of the EU's Economic Policy Committee and argue that ageing costs may be higher than projected in the AWG reference scenario. Taking into account adjusted headline estimates for ageing costs, largely based upon the sensitivity analysis carried out by the AWG, we consider alternative indicators to quantify sustainability gaps for euro area countries. With respect to the policy implications, we assess the appropriateness of different budgetary strategies to restore fiscal sustainability taking into account intergenerational equity. Our stylised analysis based upon the lifetime contribution to the government's primary balance of different generations suggests that an important degree of pre-funding of the ageing costs is necessary to avoid shifting the burden of adjustment in a disproportionate way to future generations. For many euro area countries this implies that the medium-term targets defined in the context of the revised stability and growth pact would ideally need to be revised upwards to significant surpluses. --population ageing,fiscal sustainability,generational accounting,medium-term objectives for fiscal policy

Kinderlastenausgleich versus verstaerkte Einwanderung

Die Arbeit befaßt sich mit den Finanzierungsproblemen, die durch die prognostizierte Bevölkerungsentwicklung für die Gesetzliche Rentenversicherung entstehen. Zunächst wird herausgearbeitet, daß nur Instrumente, die an den demographischen Ursachen der Finanzierungsprobleme ansetzen, eine wirkliche Reduzierung der Lasten bewirken können. Hier bieten sich eine Erhöhung des Kinderlastenausgleichs und eine verstärkte Einwanderung an. Als Ergebnis einer Wirkungsanalyse des Kinderlastenausgleichs auf der Basis der neoklassischen Fertilitätstheorie wird eine Aufstockung der Mittel um gut 70.000 DM pro Kind für erforderlich gehalten, um den Beitragssatz im Jahr 2030 gegenüber einem laissez-faire Szenario um 1,5 Prozentpunkte zu senken. Durch eine verstärkte Einwanderung ließe sich die gleiche Beitragssatzreduzierung kostengünstiger erreichen

Fiscal sustainability and policy implications for the euro area. NBB Working Papers. No. 155, 21 January 2009

In this paper we examine the sustainability of euro area public finances against the backdrop of population ageing. We critically assess the widely used projections of the Working Group on Ageing Populations (AWG) of the EU's Economic Policy Committee and argue that ageing costs may be higher than projected in the AWG reference scenario. Taking into account adjusted headline estimates for ageing costs, largely based upon the sensitivity analysis carried out by the AWG, we consider alternative indicators to quantify sustainability gaps for euro area countries. With respect to the policy implications, we assess the appropriateness of different budgetary strategies to restore fiscal sustainability taking into account intergenerational equity. Our stylised analysis based upon the lifetime contribution to the government's primary balance of different generations suggests that an important degree of pre-funding of the ageing costs is necessary to avoid shifting the burden of adjustment in a disproportionate way to future generations. For many euro area countries this implies that the medium-term targets defined in the context of the revised stability and growth pact would ideally need to be revised upwards to significant surpluses

La reacción de la política fiscal a la crisis en Italia y Alemania: ¿Son realmente casos polares en el contexto europeo?

The deep recession which hit the world economy towards the end of 2008 inducedmassive, internationally-coordinated policy responses, both monetaryand fi scal. In this paper we examine public fi nance developments in Germanyand Italy in 2009. We fi nd that the larger stimulus measures adopted inGermany mostly compensated a more favourable underlying trend; overall,the cyclically-adjusted primary balances worsened by a similar extent in thetwo countries. We further estimate the automatic stabilisers to have had animpact on the defi cit of similar magnitude in Germany and Italy. We thenassess, on the basis of counterfactual simulations, to which extent discretionarymeasures and automatic stabilizers were able to mitigate the downturnin the two countries. Our results show that the public sector contrastedthe fall in real GDP in 2009 by more than 2 percentage points in Germany andby 1 per cent in Italy. The difference in the stabilizing effect of the two public sectors refl ects not only the different size of the stimulus measures, but also thehigher fi scal multipliers associated with Germany.La profunda depresión que golpeó a la economía mundial hacia finales del2008 indujo numerosas respuestas de política coordinadas a nivel global,tanto monetarias como fiscales. En este trabajo examinamos las políticasrelativas a las finanzas públicas por parte de Alemania e Italia durante el año2009. Encontramos que las medidas de estímulo más importantes adoptadas enAlemania compensaron, en mayor parte, una tendencia subyacente másfavorable; en general, los saldos ajustados en función del ciclo primario seagravaron en similar magnitud en los dos países. Estimamos además que losestabilizadores automáticos han tenido un impacto sobre el déficit de magnitudsimilar tanto en Alemania como en Italia. A continuación, en base a simulacionescontra-fácticas, analizamos en qué grado las medidas discrecionales ylos estabilizadores automáticos fueron capaces de mitigar la crisis en los dospaíses. Los resultados muestran que el sector público contrarrestó la caída delPIB real en 2009 en más de 2 puntos porcentuales en Alemania y en un 1 porciento en Italia. La diferencia en el efecto estabilizador de los dos sectorespúblicos refleja no sólo la diferente magnitud de las medidas de estímulo, sinotambién la presencia de un multiplicador fiscal más elevado en Alemania

Fiscal sustainability and policy implications: a post-crisis analysis for the euro area

In this paper, we examine the sustainability of euro area public finances against the backdrop of population ageing after the 2008–2009 recession. We argue that ageing costs may be higher than projected by the Working Group on Ageing Populations (AWG) of the EU's Economic Policy Committee, consider alternative indicators to quantify sustainability gaps for euro area countries and assess the appropriateness of different budgetary strategies to restore fiscal sustainability taking into account intergenerational equity. Our stylised analysis based upon lifetime contributions to the government's primary balance of different generations suggests that an important pre-funding of ageing costs is necessary to avoid shifting the burden of adjustment in a disproportionate manner to future generations. For many euro area countries this implies that the medium-term targets defined in the context of the revised Stability and Growth Pact would ideally need to be revised upwards to obtain significant surpluses.population ageing; fiscal sustainability; generational accounting; medium-term objectives; fiscal policy; financial crisis; sustainable development; public finances; demographic change; euro area; Stability and Growth Pact; SGP.