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Debt, Death and Taxes

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  • Tatsuji Hayakawa
  • Paul Zak

Abstract

Does the level of government debt affect living standards and if so, to what extent? We quantify the impact of the U.S. federal debt using an open economy overlapping generations model in which consumers have long but finite lifetimes. A demographic structure allows fiscal policy changes to have different effects on different agents, and reveals the linkages between public debt, output and international trade. We find that reducing the debt has relatively modest impacts on aggregates, while reducing government spending substantially raises U.S. incomes and welfare. Therefore, this paper contributes to the current debate regarding whether U.S. federal government budget surpluses should be used to retire government debt. Copyright Kluwer Academic Publishers 2002

Suggested Citation

  • Tatsuji Hayakawa & Paul Zak, 2002. "Debt, Death and Taxes," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 9(2), pages 157-173, March.
    • Handle: RePEc:kap:itaxpf:v:9:y:2002:i:2:p:157-173
    DOI: 10.1023/A:1014699420402
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