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The welfare effects of government's preferences over spending and its financing

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  • Alper, C. Emre
  • Ardic, Oya Pinar
  • Mumcu, Ayşe
  • Saglam, Ismail

Abstract

In this paper we examine the welfare effects of government's preferences over consumption and investment spending under different methods of financing in a two-period OLG model. The government has a utility function defined over the decomposition of her spending over two periods and raises funds by issuing bonds and by printing money. She allocates her funds into consumption expenditure that benefits the current population and investment expenditure which benefits the future population. The model is calibrated using data on the U.S. economy for the period 1981-2004. The findings reveal that the government's choice of financing as well as composition of spending into consumption-investment have differing impacts on the welfare of the young and old generations.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 1911.

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Date of creation: May 2006
Date of revision: Jan 2007
Handle: RePEc:pra:mprapa:1911

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Keywords: Seigniorage; Bond financing; Composition of government spending; Overlapping generations;

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  1. David, Paul A & Scadding, John L, 1974. "Private Savings: Ultrarationality, Aggregation, and "Denison's Law."," Journal of Political Economy, University of Chicago Press, vol. 82(2), pages 225-49, Part I, M.
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  16. Thomas J. Sargent & Neil Wallace, 1981. "Some unpleasant monetarist arithmetic," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Fall.
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Cited by:
  1. varelas, erotokritos, 2013. "A Comment on Chicago Rule, Chicago School, and Commercial Bank Seigniorage," MPRA Paper 48770, University Library of Munich, Germany.

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