Jason S. Seligman

Responses to the Financial Crisis, Treasury Debt, and the Impact on Short-Term Money Markets

Several programs have been introduced by U.S. fiscal and monetary authorities in response to the financial crisis. We examine the responses involving Treasury debt - the Term Securities Lending Facility (TSLF), the Supplemental Financing Program, increases in Treasury issuance, and open market operations - and their impacts on the overnight Treasury general collateral repo rate, a key money market rate. Our contribution is to consider each policy in light of the others, both to help guide policy responses to future crises and to emphasize policy interactions. Only the TSLF was designed to directly address stresses in short-term money markets by temporarily changing the supply of Treasury collateral in the marketplace. We find that the TSLF is uniquely effective relative to other policies and that, while changes in Treasury collateral do affect repo rates, the impacts are not equivalent across sources of Treasury collateral.

Lost Stability? Consumption Taxes and the Cyclical Volatility of State and Local Revenues

Some state and local governments continue to consider moving from income and property taxes, respectively, towards consumption taxes. Since the mid-1970s Georgias local governments have had the option to substitute sales taxes for a portion of property tax receipts; the adoption of local option sales taxes (LOST) has since been widespread. This paper examines the effects of LOST on the long- and short-run volatility of local own-source revenues: Is adopting the local option sales taxes increasing or decreasing the volatility of own-source revenues? Using a large panel dataset of county governments in the state of Georgia across two most recent economic cycles, we find that LOST adds to the variability of own-source revenues, confirming that consumption taxes are less stable than property taxes they displace. This finding contributes to literature and bears direct implications to current policy debates.

Enhancing U.S. Retirement Security through Coordinated Reform of Social Security Disability and Retirement Insurance Programs

Many Social Security reform proposals have emphasized the role of savings over insurance, focusing on security in retirement. In contrast, disability in prime working age is harder to save for and thus is arguably better considered an insurable event. However, unlike determination processes for many other catastrophes, disability determination often appears inherently relative and somewhat subjective. For these reasons, most social insurance reform proposals have advocated treating the reform of disability insurance separately, subsequent to any reform of the retirement system. This article focuses on disability insurance but makes the case for considering reforms made in tandem—that is, both developing disability program reforms that accommodate plausible retirement program reforms while properly aligning incentives to support work and savings and providing a financially secure, vital safety net for disabled Americans.

Alternative Investments? State & Local Pension Portfolio Use and Performance

Over the last decade, Defined Benefit (DB) public pension systems have come under greater stress. Pensions have experienced two recessions, demographic shifts and generally bad public budget circumstances. Pensions have modified their allocation strategies over this period, generally shifting away from equities and fixed income allocations in favor of alternatives. What’s more, the stated justification for alternatives has shifted as well, from an emphasis on relative performance (alpha) towards diversification away from systemic shocks (beta). In this paper, we investigate motives for the employment of alternatives and the performance of these investments, considering both governance and financial performance motivations. We consider possible principal-agent and herding problems that may be unique to these portfolios, and find that the prudent person standard is of little protection against herding risks due to its relative benchmarking schema. Controlling for changes in governance, we find that private equity and other less liquid alternatives can be of value because of their relatively consistent pricing, whereas more liquid assets are more susceptible to price volatility. In fact, improvements in diversification (beta) can arise as an artifact of illiquidity.