IDEAS home Printed from https://ideas.repec.org/a/mof/journl/ppr18_01_01.html
   My bibliography  Save this article

Incomplete Market and Optimal Debt in an Economy with an Overlapping Generation Structure

Author

Listed:
  • Akio Ino

    (Assistant Professor, Yokohama National University)

  • Keiichiro Kobayashi

    (Research director, Tokyo Foundation for Policy Research)

Abstract

Aiyagari and McGrattan (1998) point out that in an incomplete market model, government debt may help to level out consumption by serving as a means of households savings and thereby improve social welfare. Aiyagari and McGrattan state that issuing a certain quantity of government debt is an optimal option. A similar analysis is conducted by Nakajima and Takahashi (2017) with respect to Japan. Aiyagari and McGrattan’s model assumes an infinite period of life for individuals. However, Peterman and Sager (2018) point out that if a finite period of life is assumed for individuals, the optimal quantity of government debt is a negative figure because demand for savings declines compared with the case of individuals with an infinite period of life. In addition, in Aiyagari and McGrattan’s argument, the comparison is conducted only under a stationary equilibrium and the cost that arises during the transition path in which the debt quantity changes is overlooked. This paper conducts a review of existing literature on those two points.

Suggested Citation

  • Akio Ino & Keiichiro Kobayashi, 2022. "Incomplete Market and Optimal Debt in an Economy with an Overlapping Generation Structure," Public Policy Review, Policy Research Institute, Ministry of Finance Japan, vol. 18(1), pages 1-18, April.
    • Handle: RePEc:mof:journl:ppr18_01_01
    as

    Download full text from publisher

    File URL: https://www.mof.go.jp/english/pri/publication/pp_review/ppr18_01_01.pdf
    Download Restriction: no
    ---><---

    More about this item

    Keywords

    government debt; incomplete market; overlapping generation structure; transition path;
    All these keywords.

    JEL classification:

    • H6 - Public Economics - - National Budget, Deficit, and Debt
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:mof:journl:ppr18_01_01. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Policy Research Institute (email available below). General contact details of provider: https://edirc.repec.org/data/prigvjp.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.