Public Debt and Functional Finance in an OLG Model with Imperfect Competition
AbstractThis paper examines the role of fiscal policy in the long run. We show that (i) dynamic inefficiency may be empirically relevant in a modified Diamond OLG model with imperfect competition, (ii) fiscal policy may be needed to avoid inefficiency (if investment adjusts passively to saving) and maintain full employment (if investment and saving decisions are taken separately), (iii) a simple and distributionally neutral tax scheme can maintain full employment in the face of variations in 'household confidence', and (iv) the debt ratio is inversely related to both the growth rate and government consumption. JEL Categories: E62, E22
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Bibliographic InfoPaper provided by University of Massachusetts Amherst, Department of Economics in its series UMASS Amherst Economics Working Papers with number 2012-10.
Date of creation: Dec 2012
Date of revision:
Public debt; Keynesian OLG model; dynamic efficiency; confidence; sustainability;
Find related papers by JEL classification:
- E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
- E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Capital; Investment; Capacity
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-12-10 (All new papers)
- NEP-DGE-2012-12-10 (Dynamic General Equilibrium)
- NEP-FDG-2012-12-10 (Financial Development & Growth)
- NEP-MAC-2012-12-10 (Macroeconomics)
- NEP-PBE-2012-12-10 (Public Economics)
- NEP-PKE-2012-12-10 (Post Keynesian Economics)
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