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Maximum Sustainable Government Debt In The Perpetual Youth Model

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  • Neil Rankin

Abstract

type="main"> The overlapping-generations model of Blanchard, based on a constant probability of death, is used to study the maximum level of government debt consistent with the existence of a steady state equilibrium. In both a small open and a closed economy it is shown that maximum sustainable debt robustly occurs where the consumption of individual households reaches zero, the limit of its feasible range. Taxation absorbs all of the household's labour income here. In a closed economy, at this point the real interest rate also hits a ‘ceiling’ given by a simple combination of preference parameters and the death probability.

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  • Neil Rankin, 2014. "Maximum Sustainable Government Debt In The Perpetual Youth Model," Bulletin of Economic Research, Wiley Blackwell, vol. 66(3), pages 217-230, July.
    • Handle: RePEc:bla:buecrs:v:66:y:2014:i:3:p:217-230
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    File URL: http://hdl.handle.net/10.1111/j.1467-8586.2012.00475.x
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    References listed on IDEAS

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    1. repec:kap:iaecre:v:16:y:2010:i:1:p:124-125 is not listed on IDEAS
    2. Neil Rankin & Barbara Roffia, 2003. "Maximum Sustainable Government Debt in the Overlapping Generations Model," Manchester School, University of Manchester, vol. 71(3), pages 217-241, June.
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    Cited by:

    1. Donal Smith, 2015. "Collateral Constraints and the Interest Rate," Discussion Papers 15/22, Department of Economics, University of York.
    2. Fábio Gomes & Lourenço Paz, 2015. "Large estimates of the elasticity of intertemporal substitution: is it the aggregate return series or the instrument list?," Economics Bulletin, AccessEcon, vol. 35(1), pages 168-181.
    3. Donal Smith, 2020. "Collateral Constraints and the Interest Rate," Scottish Journal of Political Economy, Scottish Economic Society, vol. 67(2), pages 137-165, May.
    4. Takaaki Morimoto & Yuta Nakabo & Ken Tabata, 2016. "Population Aging, Fiscal Sustainability and PAYG Pension Reform," Discussion Paper Series 140, School of Economics, Kwansei Gakuin University, revised Feb 2016.

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