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Deficit financing in overlapping generation economies with habit persistence

Author

Listed:
  • Luca Bossi

    (Department of Economics, University of Miami)

  • Pere Gomis-Porqueras

    (Department of Economics, University of Miami)

Abstract

In this paper, we study how deficit financing is affected by the introduction of habit formation in an otherwise standard Gale (JET, 1973) economy in which the government is a net lender and young agents are borrowing rather than saving. We find that the amount of deficit the government is able to float into the economy is lower when habits are present. This finding is due to the fact that habit persistence puts a cap on borrowing.

Suggested Citation

  • Luca Bossi & Pere Gomis-Porqueras, 2006. "Deficit financing in overlapping generation economies with habit persistence," Economics Bulletin, AccessEcon, vol. 5(17), pages 1-4.
    • Handle: RePEc:ebl:ecbull:eb-06e60004
    as

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    References listed on IDEAS

    as
    1. Gale, David, 1973. "Pure exchange equilibrium of dynamic economic models," Journal of Economic Theory, Elsevier, vol. 6(1), pages 12-36, February.
    2. de la Croix,David & Michel,Philippe, 2002. "A Theory of Economic Growth," Cambridge Books, Cambridge University Press, number 9780521001151.
    3. Lahiri, Amartya & Puhakka, Mikko, 1998. "Habit Persistence in Overlapping Generations Economies under Pure Exchange," Journal of Economic Theory, Elsevier, vol. 78(1), pages 176-186, January.
    4. George Messinis, 1999. "Habit Formation and the Theory of Addiction," Journal of Economic Surveys, Wiley Blackwell, vol. 13(4), pages 417-442, September.
    5. Messinis, George, 1999. "Habit Formation and the Theory of Addiction," Journal of Economic Surveys, Wiley Blackwell, vol. 13(4), pages 417-442, September.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Deficit Financing.;

    JEL classification:

    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • E0 - Macroeconomics and Monetary Economics - - General

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