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Fiscal policy, fairness between generations, and national saving

Ray Barrell and Martin Weale
Oxford Review of Economic Policy
Vol. 26, No. 1, MACROECONOMICS OF THE GLOBAL FINANCIAL CRISIS: MONETARY AND FISCAL RESPONSES (SPRING 2010), pp. 87-116
Published by: Oxford University Press
Stable URL: http://www.jstor.org/stable/43664553
Page Count: 30
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Fiscal policy, fairness between generations, and national saving
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Abstract

We assess fiscal policy from the perspective of fairness between generations and the relationship between this and national saving, in the context where the United Kingdom is one of the lowest saving of all the OECD economies. Cross-section and pooled data suggest that governments are in a position to influence national saving and we set out a simple overlapping generation model to show the effects of national debt, of pay-as-you-benefit systems, and of legacies and movements to land prices as means of effecting transfers between generations. Having shown that governments can influence the distribution of resources between generations we then discuss three notions of fairness between generations: (i) that each cohort should pay its own way; (ii) that a social planner should reallocate resources between generations to achieve an intertemporal optimum; and (iii) that resources should be reallocated so that generations alive at the same time have similar living standards. In the light of these observations we discuss appropriate responses to a variety of economic shocks and we conclude with implications for policy in the aftermath of the recession.

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