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Sustainability of Public Debt in an AK Model with Complex Tax System

In: Inequality and Finance in Macrodynamics

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  • Atsumasa Kondo

    (Shiga University)

Abstract

This paper theoretically investigates the role of the tax system in sustaining the public debt. The paper explicitly derives the critical level of the public debt-to-GDP ratio that is compatible with a balanced growth path. If the ratio exceeds this critical level at time 0, then it diverges to + ∞ as time passes. Analyzing a situation where the government marginally increases the consumption tax rate, the paper reveals the extent to which the government can then cut the income tax rate while maintaining the sustainability of public debt. Tax rates that are compatible with the balanced growth are also derived as a function of the initial level of debt-to-GDP ratio.

Suggested Citation

  • Atsumasa Kondo, 2017. "Sustainability of Public Debt in an AK Model with Complex Tax System," Dynamic Modeling and Econometrics in Economics and Finance, in: Bettina Bökemeier & Alfred Greiner (ed.), Inequality and Finance in Macrodynamics, pages 159-176, Springer.
    • Handle: RePEc:spr:dymchp:978-3-319-54690-2_7
    DOI: 10.1007/978-3-319-54690-2_7
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    Cited by:

    1. Alfred Greiner, 2020. "Public Debt in a Descriptive Endogenous Growth Model," Annals of Economics and Finance, Society for AEF, vol. 21(1), pages 173-187, May.

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