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The Fiscal Limit and Non-Ricardian Consumers

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  • Alexander W. Richter

Abstract

The U.S. faces exponentially rising entitlement obligations. I introduce a fiscal limit - a point where higher taxes are no longer a feasible financing mechanism - into a Perpetual Youth model to assess how intergenerational redistributions of wealth and the maturity of government debt impact the consequences of explosive government transfers. Intergenerational transfers of wealth strengthen the expectational effects of the fiscal limit and magnify the likelihood of stagflation. A longer average maturity of debt weakens these effects in the short/medium-runs but still increases stagflation in the long-run. Delaying reform increases the severity and duration of the stagflationary period.

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Bibliographic Info

Paper provided by Department of Economics, Auburn University in its series Auburn Economics Working Paper Series with number auwp2013-19.

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Date of creation: Nov 2013
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Handle: RePEc:abn:wpaper:auwp2013-19

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Keywords: Finite Lifetime; Long-Term Debt; Policy Uncertainty; Fiscal Limit; Entitlement Reform;

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Citations

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Cited by:
  1. Todd B. Walker & Alexander W. Richter & Nathaniel A. Throckmorton, 2014. "Accuracy, Speed and Robustness of Policy Function Iteration," Auburn Economics Working Paper Series auwp2014-08, Department of Economics, Auburn University.
  2. Eric M. Leeper & Todd B. Walker, 2012. "Perceptions and Misperceptions of Fiscal Inflation," NBER Chapters, in: Fiscal Policy after the Financial Crisis, pages 255-299 National Bureau of Economic Research, Inc.
  3. Alexander W. Richter & Nathaniel A. Throckmorton, 2013. "The Consequences of Uncertain Debt Targets," Auburn Economics Working Paper Series auwp2013-18, Department of Economics, Auburn University.
  4. Airaudo, Marco & Nisticò, Salvatore & Zanna, Luis-Felipe, 2012. "Learning, Monetary Policy and Asset Prices," School of Economics Working Paper Series 2012-12, LeBow College of Business, Drexel University.
  5. António Afonso & João Tovar Jalles, 2012. "Revisiting fiscal sustainability: panel cointegration and structural breaks in OECD countries," Working Papers Department of Economics 2012/29, ISEG - School of Economics and Management, Department of Economics, University of Lisbon.

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