Welfare Analysis of Debt Policy during Recessions
AbstractThis paper develops an overlapping-generations model with nominal wage rigidities and examines the welfare effects of debt policy during recessions. Issues of public debt stimulate aggregate consumption demand and create employment. Future generations then face both increased wage incomes and higher taxes. If the amount of outstanding bonds is already large, debt policy deteriorates the welfare of future generations by levying heavy taxes. By contrast, if the outstanding bond issue is relatively small, debt policy can be Pareto improving by creating more employment. Therefore, the welfare implications of debt policy during recessions can be discriminated from those during booms.
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Bibliographic InfoPaper provided by Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP) in its series Discussion Papers in Economics and Business with number 04-14.
Length: 27 pages
Date of creation: Jul 2004
Date of revision:
debt policy; overlapping generations; welfare effects.;
Find related papers by JEL classification:
- E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian
- E24 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution
- H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
This paper has been announced in the following NEP Reports:
- NEP-ALL-2005-06-19 (All new papers)
- NEP-MAC-2005-06-19 (Macroeconomics)
- NEP-PBE-2005-06-19 (Public Economics)
- NEP-PUB-2005-06-19 (Public Finance)
- NEP-SEA-2005-06-19 (South East Asia)
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