IDEAS home Printed from https://ideas.repec.org/a/eee/quaeco/v64y2017icp228-237.html
   My bibliography  Save this article

The effects of trust fund surpluses on the rest of the federal budget

Author

Listed:
  • Liu, Liqun
  • Rettenmaier, Andrew J.
  • Saving, Thomas R.
  • Wang, Zijun

Abstract

We constructed two theoretical models both of which predict that the federal fund surplus decreases, by an amount less than dollar-for-dollar, in response to an increase in the trust fund surplus. While this prediction is consistent with the empirical estimates based on the cross-sectional country-level data, it is at odds with the estimates based on the U.S. time series data. The paper then extends the existing time series analyses by considering a length-of-lag dimension in differencing the variables. By choosing alternative lengths of lag in differencing or not differencing at all, we not only are able to reproduce the range of existing time series estimates, but also generate estimates that are in line with the theoretical prediction and are consistent with those obtained from the cross-sectional country-level data. Our preferred model specification yields that only about one-third of the surplus generated in trust funds gets saved by the government.

Suggested Citation

  • Liu, Liqun & Rettenmaier, Andrew J. & Saving, Thomas R. & Wang, Zijun, 2017. "The effects of trust fund surpluses on the rest of the federal budget," The Quarterly Review of Economics and Finance, Elsevier, vol. 64(C), pages 228-237.
    • Handle: RePEc:eee:quaeco:v:64:y:2017:i:c:p:228-237
    DOI: 10.1016/j.qref.2016.08.006
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S1062976916300813
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.qref.2016.08.006?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Alejandro Saporiti & Jorge Streb, 2008. "Separation of powers and political budget cycles," Public Choice, Springer, vol. 137(1), pages 329-345, October.
    2. Sam Peltzman, 1992. "Voters as Fiscal Conservatives," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 107(2), pages 327-361.
    3. Congressional Budget Office, 2013. "The Budget and Economic Outlook: Fiscal Years 2013 to 2023," Reports 43907, Congressional Budget Office.
    4. Bosworth, Barry & Burtless, Gary, 2004. "Pension Reform and Saving," National Tax Journal, National Tax Association;National Tax Journal, vol. 57(3), pages 703-727, September.
    5. Thomas Romer & Howard Rosenthal, 1978. "Political resource allocation, controlled agendas, and the status quo," Public Choice, Springer, vol. 33(4), pages 27-43, December.
    6. Fama, Eugene F, 1991. "Efficient Capital Markets: II," Journal of Finance, American Finance Association, vol. 46(5), pages 1575-1617, December.
    7. Kent Smetters, 2004. "Is the Social Security Trust Fund a Store of Value?," American Economic Review, American Economic Association, vol. 94(2), pages 176-181, May.
    8. Newey, Whitney & West, Kenneth, 2014. "A simple, positive semi-definite, heteroscedasticity and autocorrelation consistent covariance matrix," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 33(1), pages 125-132.
    9. Johansen, Soren, 1991. "Estimation and Hypothesis Testing of Cointegration Vectors in Gaussian Vector Autoregressive Models," Econometrica, Econometric Society, vol. 59(6), pages 1551-1580, November.
    10. Jorge Streb & Gustavo Torrens, 2013. "Making rules credible: divided government and political budget cycles," Public Choice, Springer, vol. 156(3), pages 703-722, September.
    11. Sita Nataraj & John B. Shoven, 2004. "Has the Unified Budget Undermined the Federal Government Trust Funds?," NBER Working Papers 10953, National Bureau of Economic Research, Inc.
    12. Shanna Rose, 2006. "Do fiscal rules dampen the political business cycle?," Public Choice, Springer, vol. 128(3), pages 407-431, September.
    13. Adi Brender & Allan Drazen, 2008. "How Do Budget Deficits and Economic Growth Affect Reelection Prospects? Evidence from a Large Panel of Countries," American Economic Review, American Economic Association, vol. 98(5), pages 2203-2220, December.
    14. Alt, James E. & Lowry, Robert C., 1994. "Divided Government, Fiscal Institutions, and Budget Deficits: Evidence from the States," American Political Science Review, Cambridge University Press, vol. 88(4), pages 811-828, December.
    15. Campbell, John Y, 1996. "Understanding Risk and Return," Journal of Political Economy, University of Chicago Press, vol. 104(2), pages 298-345, April.
    16. Congressional Budget Office, 2013. "Updated Budget Projections: Fiscal Years 2013 to 2023," Reports 44172, Congressional Budget Office.
    17. Kent Smetters, 2003. "Is the Social Security Trust Fund Worth Anything?," NBER Working Papers 9845, National Bureau of Economic Research, Inc.
    18. Thomas L. Hungerford, 2009. "The Social Security Surplus and Public Saving," Public Finance Review, , vol. 37(1), pages 94-114, January.
    19. Alberto Alesina & Roberto Perotti & José Tavares, 1998. "The Political Economy of Fiscal Adjustments," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 29(1), pages 197-266.
    20. Congressional Budget Office, 2013. "Updated Budget Projections: Fiscal Years 2013 to 2023," Reports 44172, Congressional Budget Office.
    21. Congressional Budget Office, 2013. "The Budget and Economic Outlook: Fiscal Years 2013 to 2023," Reports 43907, Congressional Budget Office.
    22. Soren Johansen, 2002. "A Small Sample Correction for the Test of Cointegrating Rank in the Vector Autoregressive Model," Econometrica, Econometric Society, vol. 70(5), pages 1929-1961, September.
    23. Congressional Budget Office, 2013. "The Budget and Economic Outlook: Fiscal Years 2013 to 2023," Reports 43907, Congressional Budget Office.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Christopher S. Brunt, 2015. "Medicare Part B Intensity and Volume Offset," Health Economics, John Wiley & Sons, Ltd., vol. 24(8), pages 1009-1026, August.
    2. Jorge M. Streb & Daniel Lema & Gustavo Torrens, 2009. "Checks and Balances on Political Budget Cycles: Cross‐Country Evidence," Kyklos, Wiley Blackwell, vol. 62(3), pages 426-447, August.
    3. Jagjit S Chadha & Philip Turner & Fabrizio Zampolli, 2013. "The interest rate effects of government debt maturity," BIS Working Papers 415, Bank for International Settlements.
    4. Murphy, Robert G., 2014. "Explaining inflation in the aftermath of the Great Recession," Journal of Macroeconomics, Elsevier, vol. 40(C), pages 228-244.
    5. David M. Byrne & Stephen D. Oliner & Daniel E. Sichel, 2013. "Is the Information Technology Revolution Over?," International Productivity Monitor, Centre for the Study of Living Standards, vol. 25, pages 20-36, Spring.
    6. Lawson, Megan M. & Rasker, Ray & Gude, Patricia H., 2014. "The Importance of Non-labor Income: An Analysis of Socioeconomic Performance in Western Counties by Type of Non-labor Income," Journal of Regional Analysis and Policy, Mid-Continent Regional Science Association, vol. 44(2).
    7. David J. Stockton, 2013. "Fiscal Policy in the United States: Still in Need of a Strategy," CESifo Forum, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 14(02), pages 09-16, August.
    8. Robert G. Murphy, 2016. "Why Has Inflation Been So Unresponsive to Economic Activity in Recent Years?," Boston College Working Papers in Economics 920, Boston College Department of Economics.
    9. García, Israel & Hayo, Bernd, 2021. "Political budget cycles revisited: Testing the signalling process," European Journal of Political Economy, Elsevier, vol. 69(C).
    10. David Greenlaw & James D. Hamilton & Peter Hooper & Frederic S. Mishkin, 2013. "Crunch Time: Fiscal Crises and the Role of Monetary Policy," NBER Working Papers 19297, National Bureau of Economic Research, Inc.
    11. Barry Z. Cynamon & Steven M. Fazzari, 2017. "Household Income, Demand, and Saving: Deriving Macro Data With Micro Data Concepts," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 63(1), pages 53-69, March.
    12. Bo Zhao & David Coyne, 2017. "Walking a Tightrope: Are U.S. State and Local Governments on a Fiscally Sustainable Path?," Public Budgeting & Finance, Wiley Blackwell, vol. 37(3), pages 3-23, September.
    13. John Goering & Christine M. E. Whitehead, 2017. "Fiscal Austerity and Rental Housing Policy in the United States and United Kingdom, 2010–2016," Housing Policy Debate, Taylor & Francis Journals, vol. 27(6), pages 875-896, November.
    14. Jason E. Taylor & Ronald L. Klingler, 2016. "Fiscal Contraction and Economic Expansion: The 2013 Sequester and Post–World War II Spending Cuts," Cato Journal, Cato Journal, Cato Institute, vol. 36(1), pages 69-88, Winter.
    15. Shinichi Nishiyama, 2013. "Fiscal Policy Effects in a Heterogeneous-Agent Overlapping-Generations Economy With an Aging Population: Working Paper 2013-07," Working Papers 44941, Congressional Budget Office.
    16. Robert Murphy, 2016. "Explaining the Recent Behavior of Inflation in the United States," EcoMod2016 9550, EcoMod.
    17. Michalis Nikiforos, 2013. "Employment Recovery? after the Great Recession," Economics Policy Note Archive 13-03, Levy Economics Institute.
    18. Dimitri B. Papadimitriou & Greg Hannsgen & Michalis Nikiforos, 2013. "Is the Link between Output and Jobs Broken?," Economics Strategic Analysis Archive sa_mar_13, Levy Economics Institute.
    19. Jannsen, Nils, 2013. "Zu den automatischen Budgetkürzungen in den Vereinigten Staaten," Kiel Insight 2013.1, Kiel Institute for the World Economy (IfW Kiel).
    20. Michalis Nikiforos, 2013. "A New 'Lehman Moment,' or Something Worse? A Scenario of Hitting the Debt Ceiling," Economics Policy Note Archive 13-09, Levy Economics Institute.

    More about this item

    Keywords

    Social Security; Trust funds; Budget decision; Budget deficit; Public savings;
    All these keywords.

    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:quaeco:v:64:y:2017:i:c:p:228-237. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/620167 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.