Public debt in an OLG model with imperfect competition: long-run effects of austerity programs and changes in the growth rate
AbstractWe show that (i) dynamic inefficiency may be empirically relevant in a modified Diamond model with imperfect competition, (ii) if fiscal policy is used to avoid inefficiency and maintain an optimal capital intensity, the required debt ratio will be inversely related to the growth rate, and (iii) austerity policies reductions in government consumption and entitlement programs for the old generation raise the required debt ratio.
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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 2013-10.
Date of creation: 2013
Date of revision:
Public debt; dynamic efficiency; growth effects; austerity;
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-2013-11-02 (All new papers)
- NEP-DGE-2013-11-02 (Dynamic General Equilibrium)
- NEP-FDG-2013-11-02 (Financial Development & Growth)
- NEP-MAC-2013-11-02 (Macroeconomics)
- NEP-PBE-2013-11-02 (Public Economics)
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