On the (de)Stabilizing Effect of Public Debt In a Ramsey Model with Heterogeneous Agents
AbstractWe introduce public debt in a Ramsey model with heterogenous agents and a public spending externality a ecting utility which is nanced by income tax and public debt. We show that public debt considered as a xed portion of GDP can have a stabilizing or destabilizing e ect depending on some fundamental elasticities. When the public spending externality is weak and the elasticity of capital labor substitution is low enough, public debt can only be destabilizing, generating damped or persistent macroeconomic uctuations. Whereas when the public spending externality and the elasticity of capital labor substitution are strong enough, public debt can be stabilizing, driving to monotone convergence an economy experiencing damped or persistent uctuations without debt.
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Date of creation: Feb 2014
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Endogenous cycles; heterogeneous agents; public spending; public debt; borrowing constraint;
Find related papers by JEL classification:
- C62 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Existence and Stability Conditions of Equilibrium
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
- H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
This paper has been announced in the following NEP Reports:
- NEP-ALL-2014-03-01 (All new papers)
- NEP-DGE-2014-03-01 (Dynamic General Equilibrium)
- NEP-MAC-2014-03-01 (Macroeconomics)
- NEP-PBE-2014-03-01 (Public Economics)
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