This note studies the sustainability of primary budget deficits in a situation where the public sector has also incurred debt to the private sector. It shows that if the rate of pure time preference is small relative to the population growth rate, if public consumption constitutes a modest fraction of output, and if the primary budget deficit is sufficiently small, then it is also sustainable, and the associated steady state is locally stable.
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Paper provided by University of Copenhagen. Department of Economics in its series Discussion Papers with number
91-03.
Length: 9 pages Date of creation: Feb 1991 Date of revision: Publication status: Published in: Journal of Macroeconomics, 1992, 14(4) pp 745-754 Handle: RePEc:kud:kuiedp:9103
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Find related papers by JEL classification: E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
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