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Dynamic Efficiency, the Riskless Rate, and Debt Ponzi Games Under Uncertainty

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Olivier Jean Blanchard
Philippe Weil

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Abstract

Can governments roll their debt over forever in dynamically efficient economies, and thus avoid the need to raise taxes? While the answer is a clear no under certainty, it depends, under uncertainty, on whether public debt provides intergenerational insurance. When it does not, rollover is not possible, even if the rate of return on one-period bonds is below the growth rate. When it does, debt rollover may be possible, even if the return on one-period bonds is above the growth rate.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 3992.

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Date of creation: Feb 1992
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Handle: RePEc:nbr:nberwo:3992

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  1. Koda, Keiichi, 1984. "A note on the existence of monetary equilibria in overlapping generations models with storage," Journal of Economic Theory, Elsevier, vol. 34(2), pages 388-395, December. [Downloadable!] (restricted)
  2. Kocherlakota, N.R., 1990. "Bubbles and Constraints on Debt Accumulation," Working Papers 90-29, University of Iowa, Department of Economics.
  3. Andrew B. Abel & N. Gregory Mankiw & Lawrence H. Summers & Richard J. Zeckhauser, 1989. "Assessing Dynamic Efficiency: Theory and Evidence," NBER Working Papers 2097, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  4. Bertocchi, Graziella, 1991. "Bubbles and inefficiencies," Economics Letters, Elsevier, vol. 35(2), pages 117-122, February. [Downloadable!] (restricted)
  5. Rao Aiyagari, S. & Peled, Dan, 1991. "Dominant root characterization of Pareto optimality and the existence of optimal equilibria in stochastic overlapping generations models," Journal of Economic Theory, Elsevier, vol. 54(1), pages 69-83, June. [Downloadable!] (restricted)
  6. Woodford, Michael, 1986. "Expectations, Finance and Aggregate Instability," Working Papers 86-15, C.V. Starr Center for Applied Economics, New York University. [Downloadable!]
  7. Bohn, Henning, 1995. "The Sustainability of Budget Deficits in a Stochastic Economy," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 27(1), pages 257-71, February. [Downloadable!] (restricted)
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  8. Weil, Philippe, 1987. "Confidence and the Real Value of Money in an Overlapping Generations Economy," The Quarterly Journal of Economics, MIT Press, vol. 102(1), pages 1-22, February. [Downloadable!] (restricted)
  9. Peled, Dan, 1982. "Informational diversity over time and the optimality of monetary equilibria," Journal of Economic Theory, Elsevier, vol. 28(2), pages 255-274, December. [Downloadable!] (restricted)
  10. Scheinkman, Jose A & Weiss, Laurence, 1986. "Borrowing Constraints and Aggregate Economic Activity," Econometrica, Econometric Society, vol. 54(1), pages 23-45, January. [Downloadable!] (restricted)
  11. Gottardi, P., 1990. "On Stationary Monetary Equilibria In Overlapping Generations Models With Incomplete Markets," Papers 155, Cambridge - Risk, Information & Quantity Signals.
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  1. Bovenberg, A Lans & Uhlig, Harald, 2006. "Pension Systems and the Allocation of Macroeconomic Risk," CEPR Discussion Papers 5949, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  2. Hassler, John & Lindbeck, Assar, 1997. "Intergenerational Risk Sharing, Stability and Optimality of Alternative Pension Systems," Seminar Papers 631, Stockholm University, Institute for International Economic Studies. [Downloadable!]
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  3. Egil Matsen & Øystein Thøgersen, 2000. "Designing Social Security – A Portfolio Choice Approach," Working Paper Series 1102, Department of Economics, Norwegian University of Science and Technology. [Downloadable!]
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  4. Cashin, P. & Olekalns, N., 2000. "An Examination of the Sustainability of Indian Fiscal Policy," Department of Economics - Working Papers Series 748, The University of Melbourne. [Downloadable!]
  5. Barbie, Martin & Hagedorn, Marcus & Kaul, Ashok, 2001. "Government Debt as Insurance against Macroeconomic Risk," IZA Discussion Papers 412, Institute for the Study of Labor (IZA). [Downloadable!]
  6. Carlo Ambrogio Favero & Francesco Giavazzi, . "Why are Brazil´s Interest Rates so High?," Working Papers 224, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University. [Downloadable!]
  7. Laurence Ball & Douglas W. Elmendorf & N. Gregory Mankiw, 1995. "The Deficit Gamble," NBER Working Papers 5015, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  8. Luca Sala, 2004. "The Fiscal Theory of the Price Level: Identifying Restrictions and Empirical Evidence," Working Papers 257, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University. [Downloadable!]
  9. César L. Guerrero-Luchtenberg, 2004. "Alternative Dynamics and Stability Results in a Standard OLG Model. An Interpretation," Economia Mexicana NUEVA EPOCA, , vol. 0(2), pages 191-208, July-Dece. [Downloadable!]
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