Finanz und Wirtschaft, June 5, 2021. PDF.
- The debt brake addresses some political economy frictions, but not others.
- Focusing too narrowly on explicit government debt it provides incentives to accumulate implicit debt, sell assets, or engage in creative accounting.
- The political pressure to raise SNB profit disbursements is a symptom of these incentives.
ifo Schnelldienst 4/2021, April 14, 2021. PDF.
Was Schuldengrenzen aus politökonomischer Sicht besonders attraktiv erscheinen lässt – ihre vermeintliche Einfachheit und Klarheit – birgt also auch Risiken. Es führt dazu, dass Politiker und ihre Wähler die Solidität der Staatsfinanzen über Gebühr an expliziten Bruttoschulden messen. Was aber zählt, wenn es um unerwünschte Umverteilung zulasten künftiger Generationen geht, ist staatliches Nettovermögen in einer umfassenden Gesamtschau.
In a Hoover Institution Essay, Joshua Rauh describes the extent to which US states and communities under fund public sector pensions.
Even under states’ own disclosures and optimistic assumptions about future investment returns, assets in the pension systems will be insufficient to pay for the pensions of current public employees and retirees. Taxpayer resources will eventually have to make up the difference.
Despite the implementation of new Governmental Accounting Standards Board (GASB) guidelines, most public pension systems across the United States still calculate both their pension costs and liabilities under the assumption that their contributed assets will achieve returns of 7.5–8 percent per year.
But new GASB disclosures allow Rauh to estimate the size of the funding gap. He finds
unfunded accumulated benefits of $3.412 trillion under Treasury yield discounting. These are the unfunded debts that would be owed even if all plans froze their benefits at today’s promised levels.
On VoxEU, Elva Bova, Marta Ruiz Arranz, Frederik Toscani and Elif Ture discuss contingent liabilities. Their figure 2 illustrates contingent liability realizations by type and year:
In the FT, Elaine Moore and Jonathan Wheatley report about the increasing importance of sovereign-backed corporate and other debt in emerging markets.
New figures from JPMorgan and Bond Radar show that issuance of quasi-sovereign bonds outpaced that of sovereign bonds in emerging markets last year, raising the stock of such debt from $710bn in 2014 to a record $839bn by the end of 2015. By comparison, the stock of all external emerging market sovereign debt stood at $750bn at the end of last year, according to JPMorgan.
Quasi-sovereign borrowers include firms that are owned in large parts or controlled by the state, as well as local governments. Although the liabilities of these borrowers may be explicitly or implicitly guaranteed by the state, the official public debt statistics typically do not account for them.
In an NBER working paper, David Weil argues that Thomas Piketty overestimates wealth inequality. In the abstract of the paper, Weil writes:
In Capital in the 21st Century, Thomas Piketty uses the market value of tradeable assets to measure both productive capital and wealth. As a measure of wealth this is problematic because it ignores the value of human capital and transfer wealth, which have grown enormously over the last 300 years. Thus the constancy of the wealth/income ratio as portrayed in his data is an illusion. Further, the types of wealth that he does not measure are more equally distributed than tradeable assets. The approach also incorrectly identifies capital gains due to reduced discount rates as increases in the capital stock.