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Welfare Aspects of Government Issue of Indexed Bonds

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  • Stanley Fischer

Abstract

Government issue of bonds indexed to the price level has long been recommended by economists, to no observed effect. Recently skepticism has been expressed about the real effects of such government action, or indeed of any government financial intermediation. This paper examines two main approaches that might argue for government issue of indexed bonds. The first asks what financial intermediation can be provided by government that the private sector cannot provide. The answer is that the government can use its taxation powers to make possible intergenerational risk sharing that private markets cannot. This argument suggests government issue of bonds indexed to wage income. The second approach discusses optimal forms of government debt issue in light of the government's ability to manipulate the payoffs on debt which has an uncertain real return. In this context indexed debt has the potential advantage of enforcing consistency in government financing and actions

Suggested Citation

  • Stanley Fischer, 1982. "Welfare Aspects of Government Issue of Indexed Bonds," NBER Working Papers 0874, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:0874
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    1. Barro, Robert J, 1974. "Are Government Bonds Net Wealth?," Journal of Political Economy, University of Chicago Press, vol. 82(6), pages 1095-1117, Nov.-Dec..
    2. Bhattacharya, Sudipto, 1979. "Welfare and Savings Effects of Indexation," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 11(2), pages 192-201, May.
    3. Fischer, Stanley, 1980. "Dynamic inconsistency, cooperation and the benevolent dissembling government," Journal of Economic Dynamics and Control, Elsevier, vol. 2(1), pages 93-107, May.
    4. Fischer, Stanley, 1975. "The Demand for Index Bonds," Journal of Political Economy, University of Chicago Press, vol. 83(3), pages 509-534, June.
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    1. Robert C. Merton, 1983. "On Consumption Indexed Public Pension Plans," NBER Chapters, in: Financial Aspects of the United States Pension System, pages 259-290, National Bureau of Economic Research, Inc.
    2. Gordon, Roger H. & Varian, Hal R., 1988. "Intergenerational risk sharing," Journal of Public Economics, Elsevier, vol. 37(2), pages 185-202, November.

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