Working Paper: CEPR ID: DP12755
Authors: Dirk Niepelt
Abstract: This paper reviews theoretical results on financial policy. We use basic accounting identities to illustrate relations between gross assets and liabilities, net debt positions and the appropriation of (primary) budget surplus funds. We then discuss Ramsey policies, answering the question how a committed government may use financial instruments to pursue its objectives. Finally, we discuss additional roles for financial policy that arise as a consequence of political frictions, in particular lack of commitment.
Keywords: financial policy; debt; debt structure
JEL Codes: E6; F3; H6
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| financial policy choices (E62) | government effectiveness (H11) |
| financial policy decisions (E60) | accumulation of gross assets (E22) |
| financial policy decisions (E60) | accumulation of liabilities (G32) |
| accumulation of gross assets (E22) | government's net debt position (H63) |
| appropriation of primary budget surplus funds (H61) | asset accumulation (G51) |
| appropriation of primary budget surplus funds (H61) | debt repayment (H63) |
| political frictions (D72) | effectiveness of financial policies (G18) |