Working Paper: NBER ID: w2485
Authors: Jonathan Eaton
Abstract: When rents generated by government policies are perceived as permanent, the rights to earn them may be capitalized as assets that form a component of nonhuman wealth. The existence of such assets raises international indebtedness, while shifts in policy that increase or reduce the importance of such rents can generate movements in the current account that are correlated with the real exchange rate. Because the elimination of policies that generate rents imposes a capital loss that Is born entirely by generations currently alive, while the benefit of the removal of a distortion is shared between those alive and unborn generations, a possibility is that such a reform can reduce the expected lifetime welfare of everyone alive. If monopoly exists in the provision of nontraded goods then there may be several steady states that can be Pareto ranked.
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JEL Codes: No JEL codes provided
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Government policies (H59) | Monopoly rents (D42) |
| Monopoly rents (D42) | International indebtedness (F34) |
| Government policies (H59) | International indebtedness (F34) |
| Monopoly rents (D42) | Current account dynamics (F32) |
| Monopoly rents (D42) | Real exchange rates (F31) |
| Liberalization of monopoly rents (D42) | Current account surplus (F32) |
| Current account surplus (F32) | Capital flows (F32) |
| Monopoly rents (D42) | Political decision-making (D72) |
| Capital loss from reform (G18) | Current generations (J00) |
| Benefits of reform (I28) | Future generations (D15) |