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The Global Transmission of Government Debt

Listed author(s):
  • Jung Young-Cheol

    ()

    (Thompson Rivers University)

  • Quyen Nguyen V.

    ()

    (University of Ottawa)

Registered author(s):

    The overlapping-generations model à la Diamond is extended into a world of two large open economies to investigate the global transmission effects of government debts. Initially the world economy is in a long-run equilibrium without taxes and government expenditures. The government of one country then makes a transfer to the old generation, and finances the transfer through the issuance of government debts. Thereafter, this government adopts a debt management policy to maintain the debt per young individual at a constant level. The current young generation of the country is better-off if the interest rate is slightly higher than the population growth rate, but is worse-off if the factor share of capital in national income is high. Along the equilibrium path, the welfare of a generation is lower than that of its predecessor in each country. In the long run, the welfare in both countries is lower under the new steady state.

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    Article provided by De Gruyter in its journal The B.E. Journal of Macroeconomics.

    Volume (Year): 12 (2012)
    Issue (Month): 1 (July)
    Pages: 1-24

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    Handle: RePEc:bpj:bejmac:v:12:y:2012:i:1:n:24
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