Sustainable Public Debt, Credit Constraints, and Social Welfare
AbstractWhether the sustainability of public debt is promoted or foiled by credit market imperfections depends upon the fiscal policy rules. Under the golden rule, as credit constraints dissipate, public debt is more likely sustainable, whereas under the balanced budget rule, it is less likely sustainable. We also examine the social welfare under the two different fiscal rules. The balanced budget rule is more beneficial to the super-near future generations than the golden rule, whereas the golden rule is more beneficial to the near future generations than the balanced budget rule. However, to the far future generations, the balanced budget rule once again becomes more beneficial than the golden rule.
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Bibliographic InfoPaper provided by Kyoto University, Institute of Economic Research in its series KIER Working Papers with number 732.
Date of creation: Oct 2010
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Fiscal sustainability; credit constraints; social welfare; heterogeneous agents endogenous growth;
Find related papers by JEL classification:
- E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
- O40 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-10-30 (All new papers)
- NEP-DGE-2010-10-30 (Dynamic General Equilibrium)
- NEP-MAC-2010-10-30 (Macroeconomics)
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