Becker Friedman Institute series highlights views on fiscal challenges

Leading economists are exploring fiscal challenges faced by governments in a new series sponsored by UChicago’s Becker Friedman Institute for Research in Economics.

BFI Fiscal Insights connects economic research with policy questions around debt, wages, taxes and inflation. Initial articles in the series include a historical analysis of how nations chose to honor public debt by Nobel laureate Thomas J. Sargent, the William R. Berkley Professor of Economics and Business at New York University, and a framework for tax policy that fuels economic growth by Edward P. Lazear, former chairman of the White House Council of Economic Advisers and the Jack Steele Parker Professor of Human Resources Management and Economics at Stanford University Graduate School of Business.

“The series tackles pressing fiscal questions from a variety of perspectives, including historical, direct policymaking, and the intersection of fiscal policy and monetary policy,” said Lars Peter Hansen, director and co-chair of the Becker Friedman Institute and the David Rockefeller Distinguished Service Professor in Economics and Statistics at UChicago. “The authors seek to provide new insights for those wrestling with complex fiscal questions, from economic growth in the U.S to the United Kingdom’s exit from the European Union.”

BFI Fiscal Insights draws upon the deep knowledge of the institute’s distinguished fellows—top scholars who participate in the institute’s intellectual community and help lead select research initiatives. Fellows include Sargent and Lazear as well as Richard Blundell, the David Ricardo Professor of Political Economy at University College London, and John Cochrane, senior fellow at Stanford’s Hoover Institution. Both will contribute to BFI Fiscal Insights in the coming months along with Fernando Alvarez, the William C. Norby Professor in Economics at UChicago, Juan Pablo Nicolini, a senior research economist at the Federal Reserve Bank of Minneapolis, and Hansen, a 2013 Nobel laureate.

In the first article of the series, Sargent explores lessons from fiscal history, viewing the past through the lens of government bonds. He writes how the interest of bondholders can have a strong influence on government policy, from how treaties are written to decisions around going to war.

Sargent closes by highlighting the role debtholders continue to play. “About 35 percent of marketable U.S. government debt is held by foreigners,” Sargent writes. “They have large claims on taxes to be collected by the U.S. government. They are interested in U.S. fiscal policy. Though they don’t vote in U.S. elections, they have other ways of expressing their preferences.”