Fiscal Policy, Fairness between Generations, and National Saving

Posted: 4 Jun 2010

See all articles by Ray Barrell

Ray Barrell

National Institute of Economic and Social Research (NIESR)

Martin R. Weale

National Institute of Economic and Social Research (NIESR)

Date Written: Spring 2010

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 inter-temporal 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.

Keywords: fiscal policy, national saving, generational equality, overlapping generations analysis, E21, E61, E62, H62, H63

Suggested Citation

Barrell, Ray and Weale, Martin R., Fiscal Policy, Fairness between Generations, and National Saving (Spring 2010). Oxford Review of Economic Policy, Vol. 26, Issue 1, pp. 87-116, 2010, Available at SSRN: https://ssrn.com/abstract=1612640 or http://dx.doi.org/grq002

Ray Barrell (Contact Author)

National Institute of Economic and Social Research (NIESR) ( email )

2 Dean Trench Street
Smith Square
London SW1P 3HE
United Kingdom
0171 222 7665 (Phone)
0171 654 1900 (Fax)

Martin R. Weale

National Institute of Economic and Social Research (NIESR) ( email )

2 Dean Trench Street
Smith Square
London SW1P 3HE
United Kingdom

HOME PAGE: http://www.niesr.ac.uk/

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