Two equivalence theorems for government finance
AbstractThis paper studies the effects of a path change in government debt composition and aggregate transfers on allocations and prices. It is shown that the effects are zero under some agent-specific transfer scheme even when markets are incomplete. If markets are complete, then the effects are zero under any transfer scheme that leaves each agent's lifetime resource unchanged if and only if agents are always collectively compensated for next period's return change. The infinite-horizon framework used has an arbitrary number of assets with arbitrary returns and an arbitrary mixture of finitely and infinitely lived agents.
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Bibliographic InfoPaper provided by Board of Governors of the Federal Reserve System (U.S.) in its series International Finance Discussion Papers with number 622.
Date of creation: 1998
Date of revision:
This paper has been announced in the following NEP Reports:
- NEP-ALL-1998-10-15 (All new papers)
- NEP-CFN-1998-10-15 (Corporate Finance)
- NEP-PUB-1998-10-15 (Public Finance)
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