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The economic effects of restrictions on government budget deficits: imperfect private credit markets

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Author Info

  • Christian Ghiglino
  • Karl Shell

Abstract

The present paper is an extension of Ghiglino and Shell [7] to the case of imperfect consumer credit markets. We show that with constraints on individual credit and only anonymous (i.e., non-personalized) lump-sum taxes, strong (or “global”) irrelevance of government budget deficits is not possible, and weak (or “local”) irrelevance can hold only in very special situations. This is in sharp contrast to the result for perfect credit markets. With credit constraints and anonymous consumption taxes, weak irrelevance holds if the number of tax instruments is sufficiently large and at least one consumer's credit constraint is not binding. This is an extension of the result for perfect credit markets. Copyright Springer-Verlag Berlin Heidelberg 2003

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File URL: http://hdl.handle.net/10.1007/s00199-002-0288-5
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Bibliographic Info

Article provided by Springer in its journal Economic Theory.

Volume (Year): 21 (2003)
Issue (Month): 2 (03)
Pages: 399-421

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Handle: RePEc:spr:joecth:v:21:y:2003:i:2:p:399-421

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Web page: http://link.springer.de/link/service/journals/00199/index.htm

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Related research

Keywords: Keywords and Phrases: Balanced-budget amendment; Consumption taxes; Credit constraints; Government budget deficit irrelevance; Lump-sum taxes; Overlapping generations.; JEL Classification Numbers: D50; D90; E52; E60; H62; H63.;

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Cited by:
  1. Richard Evans & Kerk Phillips, 2014. "OLG Life Cycle Model Transition Paths: Alternate Model Forecast Method," Computational Economics, Society for Computational Economics, vol. 43(1), pages 105-131, January.

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