Two equivalence theorems for government finance

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Two equivalence theorems for government finance

Author Info

Dahai Yu

Abstract

This 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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Paper provided by Board of Governors of the Federal Reserve System (U.S.) in its series International Finance Discussion Papers with number 622.

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Date of creation: 1998
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Handle: RePEc:fip:fedgif:622

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Related research
Keywords: Finance; Public;

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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Other versions:
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Other versions:
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Other versions:
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Lucas, Robert E, Jr & Stokey, Nancy L, 1987. "Money and Interest in a Cash-in-Advance Economy," Econometrica, Econometric Society, vol. 55(3), pages 491-513, May. [Downloadable!] (restricted)
Other versions:
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Other versions:
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Other versions:
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DeMarzo, Peter M., 1988. "An extension of the Modigliani-Miller theorem to stochastic economies with incomplete markets and interdependent securities," Journal of Economic Theory, Elsevier, vol. 45(2), pages 353-369, August. [Downloadable!] (restricted)

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