We examine empirically how the maturity structure of government debt affects bond yields and excess returns. Our analysis is based on a theoretical model of preferred habitat in which clienteles with strong preferences for specific maturities trade with arbitrageurs. Consistent with the model,...

This paper develops a political-economic model of fiscal policy - one in which government resources are a common property' out of which interest groups can finance expenditures on their preferred items. This setup has striking macroeconomic implications. Transfers are higher than a benevolent...

With over $1 trillion in assets, the U.S. Social Security trust fund is the largest pension reserve in the world, and potentially a model for other developed countries facing future financing problems. But are those assets actually worth anything?' This question has generated a heated debate in...

This paper analyzes the theoretical and quantitative implications of optimal capital taxation in the neoclassical growth model with aggregate shocks and incomplete markets. The model features a representative-agent economy with proportional taxes on labor and capital. I first consider the case...

In recent years, the renewed strength of immigration to the United States has sparked a debate about the economic effects of immigration. A central issue in this debate has been the fiscal impact of immigrants. Most research in this area has adopted a static, cross-section approach in assessing...

The standard view of the political economy of public debt is that myopic and unconstrained politicians prefer to disregard intertemporal smoothing considerations and extract political rents as fast as possible. From this perspective, it seems that the world has much to celebrate, as most...

This paper, which was written as part of the NBER project on American economic policy in the 1980s, examines the changes in government spending and budget deficits during the decade. The paper analyzes why the deficit increased substantially and looks at the policy options for reducing the...

This paper uses the neoclassical growth model to examine the extent to which a tax cut pays for itself through higher economic growth. The model yields simple expressions for the steady-state feedback effect of a tax cut. The feedback is surprisingly large: for standard parameter values, half of...

Recently we were asked to serve on the President's Commission to Strengthen Social Security (CSSS) along with 14 other members drawn equally from both major political parties. The Commission's charge was to provide recommendations to modernize the Social Security system, restore its fiscal...

Does the economic analysis associated with the modern Austrian school favor a policy of restraining the government’s fiscal deficit even in a subpar economy, as suggested by those who (pejoratively) label such a policy “austerian”? Because resources are not superabundant even in a subpar...