The international aspects of fiscal policies were the subject of a conference on Fiscal Policies in Open Macro Economies, which was held in Tokyo on 7/8 January and jointly sponsored by the Centre for Economic Research, the National Bureau of Economic Research and the Tokyo Center for Economic Research (TCER). The conference was organized by Kazumi Asako (Yokohama National University and TCER), Takatoshi Ito (Hitotsubashi University, NBER and TCER) and Michihiro Ohyama (Keio University and TCER). Funding for the conference was provided to NBER by the Mitsubishi Trust and Banking Corporation and to TCER by Mitsubishi International Foundation. The costs of conference participants' travel was provided to CEPR by the Ford and Alfred P Sloan Foundations as part of their support for the Centre's International Macroeconomics programme.
Nouriel Roubini (Yale University, CEPR and NBER) presented his joint paper with Giancarlo Corsetti on `Fiscal Deficits, Public Debt and Government Solvency: Evidence from OECD Countries', which addressed both methodological and empirical aspects of tests for public sector solvency. Roubini stressed that meeting the intertemporal budget constraint was a long-term concern. He examined whether tests were more likely to show a country as insolvent as the the policy period extended into the distant future. The results for a sample of 18 OECD countries during 1960-89 showed a wide variety of patterns of fiscal policy. Of the G7 countries, only Italy had a serious solvency problem, while the results of formal statistical tests for the US were ambiguous. Of the smaller OECD countries Belgium, Greece, Ireland and the Netherlands appeared to face problems of sustainability on their present fiscal policy paths; although Belgium and Ireland both embarked on policies of fiscal adjustment in the mid-1980s. Solvency did not appear to be a problem for the rest of the OECD countries in the sample, which are all characterized by primary fiscal surpluses and low and falling ratios of debt to GDP.
George Alogoskoufis (Birkbeck College, London, and CEPR) presented his joint paper with Frederick van der Ploeg, `On Budgetary Policies, Growth and External Deficits in an Interdependent World'. They used a two-country model with overlapping generations and endogenous growth to examine the international spillovers of budgetary policies. They found that if capital is mobile, growth rates are equalized but output levels do not converge. A world-wide rise in the public debt/GDP ratio or the average share of public consumption in GDP reduces world savings and growth; while a relative rise in one country's public debt/GDP ratio or the share of public consumption in its GDP reduce both its external assets and its relative savings rate. This fall in the savings rate is higher in the short run, when the country will also experience current account deficits.
Matthew Canzoneri (Georgetown University) presented his joint paper with Behzad Diba, `Fiscal Deficits, Financial Integration, and a Central Bank for Europe'. Canzoneri used a two-country model (for `Germany' and `Italy') to show that financial integration creates a coordination problem because governments will spend too much. This will benefit `German' households even if `Italy' lacks fiscal discipline; and the more `Italy' borrows, the better off `Germany' will be. `Italian' households may lose from financial integration if they do not value public spending or if their government is not disciplined. A central bank operated by a Community agency will not necessarily impose either price stability or fiscal discipline, since if it has a distributional goal this will give national governments an incentive to over-extend themselves financially. This will exacerbate the fiscal coordination problem; and a central bank guided by the Friedman `x per cent rule' will dominate such a `discretionary' central bank. Binding fiscal rules may help the central bank to achieve price stability and solve the fiscal coordination problem.
In his paper on `Budgetary Balance, Ageing and External Imbalance: The Future of the US-Japan External Imbalance', Kazumasa Iwata (University of Tokyo and TCER) argued that the large government debts of the US and Japan, combined with their social security systems, crowd out world capital formation by about a quarter. The results of his simulation exercise indicated that the US-Japanese external imbalance will continue for at least 30 years if the overall debt position does not change. Japan will become a net borrower as a result of ageing by 2020, if not earlier.
Dipankar Dasgupta (Indian Statistical Office and Otaru University of Commerce) presented his paper, `The Macroeconomics of Price Controls'. Using a stylized model encompassing features of the Indian economy, he argued that price controls may have expansionary effects on output, either by encouraging the use of imported inputs or by redistributing income towards profits.
Assaf Razin (Tel-Aviv University and NBER) presented his joint paper with Leonardo Leiderman on `Determinants of External Imbalances: The Role of Taxes, Government Spending and Productivity'. He presented an overlapping generations model, with structural parameters reflecting preferences and technology, for a small open economy. He then estimated and simulated this model for Israel to analyse the effects of alternative policy scenarios on external imbalances. The resulting relationship between output growth, current account behaviour and changes in national wealth is not simple, since it depends on whether an expansion is driven by consumption or investment and whether wages fully reflect productivity growth.
Toshihiro Ihori (Osaka University and TCER) presented his joint paper with Raymond Batina on `International Spillover Effects of Consumption Taxation'. They used a two-country overlapping generations model to examine the effects of a revenue-neutral increase in consumption taxes coupled with a reduction in income taxes. Contrary to conventional wisdom, this policy may reduce capital accumulation and transmit a negative externality to the rest of the world, provided that labour supply is endogenous and bequests are taxed at the same rate as consumption (or tax rates are initially high).
In their paper `The Rise and Fall of Government Deficits in Japan, 1965-90', Kazumi Asako (Yokohama National University and TCER) and Takatoshi Ito (Hitotsubashi University, NBER and TCER) examined the behaviour of this deficit in the 1970s and early 1980s under a variety of alternative hypotheses concerning Keynesian fine-tuning, international policy coordination (the 1978 Bonn summit), the second oil crisis and social welfare programmes. Except for the period 1976-9, they attributed the deficits to unexpected downturns in the economy. They also examined the fall in the deficit after 1983, which involved a nominal freeze on expenditure and tax brackets.
Kenneth Kletzer (Yale University) presented final paper of the conference, on `Persistent Differences in National Productivity Levels and Growth Rates with Common Technology and Free Capital Mobility', written jointly with Willem Buiter. In their endogenous growth model with overlapping generations, growth is driven by the accumulation of human capital, not by physical capital accumulation as in the Alogoskoufis/van der Ploeg model described above. Growth rates can therefore differ between countries, since it is assumed that human capital is not traded internationally. Kletzer also examined the roles of private thrift, public debt, capital taxation and policy towards human capital formation in affecting growth differentials.

The papers presented at this conference will be published in a special issue of the Journal of the Japanese and International Economies in December 1991.