Finite Lifetimes and the Crowding Out Effects of Budget Deficits
AbstractThis note explores the sensitivity of the short-run savings effects of government deficits to assumptions about household planning horizons. Using a lifecycle simulation model, we show that even though deficit policies shift sizable tax burdens to future generations, individuals live long enough to make the assumption of an infinite horizon a good approximation for analyzing the short-run savings effects. In practice, periods of debt accumulation such as that in the United States during World War II are reversed sufficiently rapidly to make their short-run effects on consumption and national savings relatively small.
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Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 1955.
Date of creation: Jun 1986
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