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The V. Pareto criterion for classifying positions as 'optimal' or 'non-optimal' has been widely employed in modern welfare econ's. However, as R. Frisch has suggested, the criterion is meaningful only when the conditions within which choices are to be made are specified. If these conditions ('rules of the game'), are left unspecified, there is no determinate set of Pareto optimal points, since the boundaries of the set depend on the conditions. This paper presents the argument that welfare economists who have employed the Pareto criterion have implicitly accepted the unanimity condition as that which bounds the Pareto criterion in its applicability. Changes in the set of existing soc rules are discussed as if such changes should require general support. It is argued that the Pa.reto criterion loses all relevance unless this position is accepted. Examples are provided with reference to the discussion of important econ policy questions. AA.

Most monetary policy committees decide on interest rates using a simple majority voting rule. Given the inherent heterogeneity of committee members, this voting rule is suboptimal in terms of the quality of the interest rate decision, but popular for other (political) reasons. We show that a clustering of committee members into 2 subgroups, as is the case in a hub-and spokes systems of central banks such as the Fed or the ESCB, can eliminate this suboptimality whilst retaining the majority voting rule.

This book studies the sustainability and optimality of public debt under different scenarios: the closed economy, the small open economy, and a two-country setting. Sustainability refers to the existence and the stability of the long-run equilibrium. Optimality relates to the path of public debt that maximizes discounted utility. The analysis is conducted within the framework of the Solow model, the overlapping generations model and the infinite horizon model. The government can follow different strategies, it either fixes the deficit ratio or the tax rate. As a result, a fixed deficit ratio generally can be sustained. By contrast, a fixed tax rate generally cannot be sustained. Depending on the chosen fiscal strategy, there exists either an optimal deficit ratio or an optimal tax rate that maximizes the sum of consumption and government purchases per capita.

This book studies the sustainability and optimality of public debt under different scenarios: the closed economy, the small open economy, and a two-country setting. Sustainability refers to the existence and the stability of the long-run equilibrium. Optimality relates to the path of public debt that maximizes discounted utility. The analysis is conducted within the framework of the Solow model, the overlapping generations model and the infinite horizon model. The government can follow different strategies, it either fixes the deficit ratio or the tax rate. As a result, a fixed deficit ratio generally can be sustained. By contrast, a fixed tax rate generally cannot be sustained. Depending on the chosen fiscal strategy, there exists either an optimal deficit ratio or an optimal tax rate that maximizes the sum of consumption and government purchases per capita.

Using the standard nonlinear income taxation framework with heterogeneity of preferences, this paper examines the optimality of workfare as a screening tool. It is assumed that workfare does not serve as a human capital investment, participation is mandatory, and administrative costs are negligible. Imposing alternative cardinalizations on individuals utilities, allows for the possibility that the government optimally redistributes income to or from high disutility of labour individuals. Under either case, workfare is never optimal to impose on these individuals. It is also shown that non-productive workfare can be an efficient policy tool, in contrast to the results found in Besley and Coate (1995), Brett (1997), and Beaudry and Blackorby (1997).