Debt Policy in a Competitive Two-Sector Overlapping Generations Model
AbstractWe analyse debt policy in a two-period, two-sector overlapping generations model with Leontief technologies. We find that debt, issued to transfer resources to the initially old, could be welfare improving in the new steady state for an economy which satisfies the usual conditions for dynamic efficiency viz. the rate of interest is at least as great as the population growth rate. Out of steady state, the only potential losers are the recipients of the transfer. This could happen if the interest rate were to fall sufficiently to offset the effect of the transfer. From generation one onwards everyone becomes better off (under reasonable asumptions). Contrast this with a one-sector model where the definite gainers are those who are alive on date one.
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Bibliographic InfoPaper provided by Centre for Development Economics, Delhi School of Economics in its series Working papers with number 137.
Length: 18 pages
Date of creation: Jul 2005
Date of revision:
Other versions of this item:
- Partha Sen, 2010. "Debt Policy in a Competitive Two-Sector Overlapping Generations Model," Working Papers id:2914, eSocialSciences.
- E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
- E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
This paper has been announced in the following NEP Reports:
- NEP-ALL-2005-08-20 (All new papers)
- NEP-DGE-2005-08-20 (Dynamic General Equilibrium)
- NEP-MAC-2005-08-20 (Macroeconomics)
- NEP-PBE-2005-08-20 (Public Economics)
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