Advanced Search
MyIDEAS: Login to save this paper or follow this series

Government Solvency, Ponzi Finance and the Redundancy and Usefulness of Public Debt

Contents:

Author Info

  • Willem H. Buiter
  • Kenneth M. Kletzer

Abstract

We investigate how the ability of the government to depart from budget balance and issue debt expands the set of equilibria that can be supported using lump-sum tax-transfer instruments. We show how this depends on the restrictions that exist on the capacity to tax and make transfer payments, and what these restrictions imply for the government's ability to issue debt. Central to our analysis is the definition of solvency for an infinite-lived government in an infinite-lived economy with overlapping generations of finite-lived households. Our specification is derived from the demand for public debt by private agents and the non-negativity constraints on the capital stock and on private consumption by all generations. Under fairly tight restrictions on the government's tax-transfer menu, our solvency constraint implies the conventional solvency constraint. With unrestricted taxes and transfers Ponzi finance is always possible but 'inessential": it does not expand the set of equilibria that can be supported. Ponzi finance can be "essential" when taxes and transfers are restricted. The paper establishes a number of results that demonstrate how the government's ability to issue debt allows restricted tax-transfer schemes to support all equilibria attainable using unrestricted taxes and transfers

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.nber.org/papers/w4076.pdf
Download Restriction: no

Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 4076.

as in new window
Length:
Date of creation: May 1992
Date of revision:
Publication status: published as "Uses and Limitations of Public Debt: Pouz: Finance, Dynamic Efficiency and Government Solvency", in H.VanEes and S.Brakman eds. Market Behaviour and Macreconomic Modelling, McGraw-Hill, 1997, pp. 275-307.
Handle: RePEc:nbr:nberwo:4076

Note: PE
Contact details of provider:
Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
Phone: 617-868-3900
Email:
Web page: http://www.nber.org
More information through EDIRC

Related research

Keywords:

Other versions of this item:

Find related papers by JEL classification:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Enders, Walter & Lapan, Harvey E, 1982. "Social Security Taxation and Intergenerational Risk Sharing," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 23(3), pages 647-58, October.
  2. Olivier J. Blanchard & Philippe Weil, 2001. "Dynamic Efficiency, the Riskless Rate, and Debt Ponzi Games under Uncertainty," Sciences Po publications info:hdl:2441/8607, Sciences Po.
  3. Roger H. Gordon & Hal R. Varian, 1985. "Intergenerational Risk Sharing," NBER Working Papers 1730, National Bureau of Economic Research, Inc.
  4. Alan J. Auerbach & Jagadeesh Gokhale & Laurence J. Kotlikoff, 1991. "Generational Accounts - A Meaningful Alternative to Deficit Accounting," NBER Working Papers 3589, National Bureau of Economic Research, Inc.
  5. Zilcha, Itzhak, 1990. "Dynamic efficiency in overlapping generations models with stochastic production," Journal of Economic Theory, Elsevier, vol. 52(2), pages 364-379, December.
  6. Martin Feldstein, 1986. "The Effects of Fiscal Policies When Incomes are Uncertain: A Contradiction to Ricardian Equivalence," NBER Working Papers 2062, National Bureau of Economic Research, Inc.
  7. Andrew B. Abel, . "The Implications of Insurance for the Efficacy of Fiscal Policy," Rodney L. White Center for Financial Research Working Papers 6-88, Wharton School Rodney L. White Center for Financial Research.
  8. McCallum, Bennett T, 1984. "Are Bond-Financed Deficits Inflationary? A Ricardian Analysis," Journal of Political Economy, University of Chicago Press, vol. 92(1), pages 123-35, February.
  9. Paul A. Samuelson, 1958. "An Exact Consumption-Loan Model of Interest with or without the Social Contrivance of Money," Journal of Political Economy, University of Chicago Press, vol. 66, pages 467.
  10. Shell, Karl, 1971. "Notes on the Economics of Infinity," Journal of Political Economy, University of Chicago Press, vol. 79(5), pages 1002-11, Sept.-Oct.
  11. Louis Kaplow, 1991. "A Note on Taxation as Social Insurance for Uncertain Labor Income," NBER Working Papers 3708, National Bureau of Economic Research, Inc.
  12. Eaton, Jonathan & Rosen, Harvey S, 1980. "Taxation, Human Capital, and Uncertainty," American Economic Review, American Economic Association, vol. 70(4), pages 705-15, September.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Willem H. Buiter, 1997. "Aspects of fiscal performance in some transition economies under fund-supported programs," LSE Research Online Documents on Economics 20353, London School of Economics and Political Science, LSE Library.
  2. Cuddington, John T., 1997. "Analyzing the sustainability of fiscal deficitsin developing countries," Policy Research Working Paper Series 1784, The World Bank.
  3. Shuanglin Lin, 1994. "Capital taxation and accumulation in a growing world economy with deficit finance," International Tax and Public Finance, Springer, vol. 1(2), pages 127-146, October.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:4076. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.