Øystein Thøgersen

A Crisis Not Wasted – Institutional and Structural Reforms Behind Norway's Strong Macroeconomic Performance.

This paper draws the line between the Norwegian boom-bust cycle and crises in the late 1980s and early 1990s, the succeeding institutional and structural reforms and the strong macroeconomic performance and stability of the last two decades. The systemic banking crisis and speculative attack on the Norwegian krone in the early 1990s were the last in a series of blows to Norway’s macroeconomic policy regime. In addition to the recession after 1988, the underlying growth potential of the Mainland economy was also weak, despite financial deregulation and the gains in competitiveness. The large oil price fall in the mid-1980s had demonstrated the risk of uncertain oil revenues as an important source of income to the government. The political awareness of an economic crisis paved the way for a series of structural reforms and changes in the macroeconomic policy regime. Some of these reforms were implemented quickly, such as a tax reform, an energy market reform and a new incomes policy framework. In 2001 a new framework for monetary and fiscal policy was put in place, involving a flexible exchange rate and inflation targeting, as well as a new fiscal policy rule designed to facilitate consumption smoothing and a build-up of a sovereign wealth fund. We discuss possible reasons why Norway’s political system has been able to learn from previous policy failures and reach the necessary consensus, and determination, to implement institutional and structural reforms in economic policy.

Petroleum wealth, debt policy, and intergenerational welfare: The case of Norway

Abstract What happens to the welfare of present and future generations in Norway if the petroleum wealth of the central government is consumed in the course of the next 40 years? By simulating a computable overlapping-generations model, this paper illustrates the magnitudes that are likely to be involved. Due to the Norwegian governments huge wealth, the scope for intergenerational redistribution through debt policy is much greater in Norway than in most other countries in the OECD. Our results indicate that a wealth consumption policy has serious and long-lasting negative effects on the welfare of the present very young generations and generations that are not yet born.

Reforming social security: assessing the effects of alternative funding strategies

Population ageing implies that the large pay-as-you-go social security programmes implemented in many OECD economies will run into severe financial problems. By means of a numerical overlapping generations model, this paper investigates the intergenerational welfare effects of a transition to funded security programmes. Such programmes imply permanent increases in the welfare of the young and unborn generations. It is demonstrated that the size of the welfare gains varies significantly between alternative funding strategies. A nonindividualized funding strategy characterized by increased government asset accumulation triggers considerable welfare gains through increased asset returns in the future. Even larger welfare gains may be realized by an individual funding strategy characterized by increased asset accumulation accompanied by an adoption of actuarial supplementary pensions (i.e. actuarial supplementary pensions combined with a fixed minimum pension) which reduces future tax distortions drastically.

Social Security and Future Generations

We survey the effects of social security in the form of mandatory public pension programs on the intergenerational distribution of tax burdens, income, various risks and welfare. The first part considers basic theoretical concepts and highlight how the intergenerational effects of social security hinge on three types of major mechanisms: i) Defined benefit vs. defined contribution, ii) pay-as-yougo financing vs. funding and iii) the strength of the tax-benefit link of the program. The second part of the survey considers advances in the large literature that offer quantitative assessments of social security programs and reform proposals by means of numerical overlapping generations models. In both parts of the survey we distinguish between deterministic models and models that incorporate various stochastic elements.

Habit Formation, Strategic Extremism and Debt Policy

We suggest a probabilistic voting model where voters’ preferences for alternative public goods display habit formation. Current policies determine habit levels and in turn the future preferences of the voters. This allows the incumbent to act strategically in order to influence the probability of reelection. Comparing to a benchmark case of a certain reelection, we demonstrate that the incumbent’s optimal policy features both a more polarized allocation between the alternative public goods and a debt bias.

International diversification and oil price risk

The effects of oil price risk on international risk sharing are studied. Both petroleum importing and exporting countries within OECD-Europe are considered. The empirical analysis indicates that uninsured idiosyncratic oil price risk accounts for parts of the observed low consumption correlations between these countries. This suggests that both petroleum exporters and importers could benefit from innovations in the markets for claims to unextracted oil and natural gas.

Saving and Bequest in China: An Analysis of Intergenerational Exchange

Particularly high saving rates among the elderly in both rural and urban China call for an investigation of the involved bequest motive. Utilizing unique survey data from a diverse group of Chinese households, we document that the magnitude of the bequest from parent to child is synchronized with the level of personal assistance from child to parent. Moreover, both bequest and assistance are increasing in the parents income and decreasing in the childs income. Comparing with the prediction from a stylized overlapping generations model, these findings are consistent with an exchange-based bequest motive. This conclusion has implications for how public policies and transfer schemes may be designed in order to contribute to the government objective of increased private consumption. Our results indicate that an important driver for our result is the housing wealth as part of the bequest.

Government resource revenues, fiscal policy and precautionary saving

This paper explains counterintuitive effects of a tax cut on current consumption in a small open economy where the government is endowed with an uncertain resource wealth. Depending on fiscal policy and the extraction path of the resource, different generations face different risks regarding their tax burden, and this affects private saving. The effect of a one-period tax cut followed by tax increases in order to stabilize the expected government wealth depends on whether the tax cut is financed by intensified resource extraction. This triggers increased precautionary saving which may offset the wealth effect of the tax policy on the consumption of present generations.