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Welfare Analysis of Debt Policy during Recessions

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Takayuki Ogawa
Abstract

This paper develops an overlapping-generations model with nominal wage rigidities and examines the welfare effects of debt policy when unemployment exists. Issues of public debt stimulate aggregate consumption demand and create employment. Future generations then face both increased wage incomes and higher taxes. If the amount of outstanding bonds is already large, debt policy deteriorates the welfare of future generations by levying heavy taxes. By contrast, if the outstanding bond issue is relatively small, debt policy can be Pareto improving by creating more employment. Therefore, the welfare implications of debt policy during recessions can be discriminated from those during booms.

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Paper provided by Institute of Social and Economic Research, Osaka University in its series ISER Discussion Paper with number 0642.

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Date of creation: Sep 2005
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Handle: RePEc:dpr:wpaper:0642

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  3. Sen, Partha, 2002. "Welfare-improving debt policy under monopolistic competition," Journal of Economic Dynamics and Control, Elsevier, vol. 27(1), pages 143-156, November. [Downloadable!] (restricted)
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  4. Futagami, Koichi & Shibata, Akihisa, 2003. "Budget Deficits and Economic Growth," Discussion Paper 133, Center for Intergenerational Studies, Institute of Economic Research, Hitotsubashi University. [Downloadable!]
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  5. Buiter, Willem H, 1988. "Death, Birth, Productivity Growth and Debt Neutrality," Economic Journal, Royal Economic Society, vol. 98(391), pages 279-93, June. [Downloadable!] (restricted)
  6. Futagami, Koichi & Shibata, Akihisa, 1999. "Welfare effects of bubbles in an endogenous growth model," Research in Economics, Elsevier, vol. 53(4), pages 381-403, December. [Downloadable!] (restricted)
  7. Weil, Philippe, 1987. "Permanent budget deficits and inflation," Journal of Monetary Economics, Elsevier, vol. 20(2), pages 393-410, September. [Downloadable!] (restricted)
  8. Barro, Robert J & Grossman, Herschel I, 1971. "A General Disequilibrium Model of Income and Employment," American Economic Review, American Economic Association, vol. 61(1), pages 82-93, March. [Downloadable!] (restricted)
  9. Saint-Paul, Gilles, 1992. "Fiscal Policy in an Endogenous Growth Model," The Quarterly Journal of Economics, MIT Press, vol. 107(4), pages 1243-59, November. [Downloadable!] (restricted)
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  10. Rankin, N, 1986. "Debt Policy under Fixed and Flexible Prices," Oxford Economic Papers, Oxford University Press, vol. 38(3), pages 481-500, November. [Downloadable!] (restricted)
  11. Weil, Philippe, 1989. "Overlapping families of infinitely-lived agents," Journal of Public Economics, Elsevier, vol. 38(2), pages 183-198, March. [Downloadable!] (restricted)
  12. King, Robert G. & Rebelo, Sergio T., 1999. "Resuscitating real business cycles," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 14, pages 927-1007 Elsevier. [Downloadable!] (restricted)
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