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Dynamic Efficiency, the Riskless Rate, and Debt Ponzi Games under Uncertainty

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  • Blanchard Olivier

    () (MIT and NBER)

  • Weil Philippe

    () (Université Libre de Bruxelles (ECARES), CEPR and NBER)

Abstract

In a dynamically efficient economy, can a government roll its debt forever and avoid the need to raise taxes? In a series of examples of economies with zero growth, this paper shows that such Ponzi games may be infeasible even when the average rate of return on bonds is negative, and may be feasible even when the average rate of return on bonds is positive. The paper then reveals the structure which underlies these examples.

Suggested Citation

  • Blanchard Olivier & Weil Philippe, 2001. "Dynamic Efficiency, the Riskless Rate, and Debt Ponzi Games under Uncertainty," The B.E. Journal of Macroeconomics, De Gruyter, vol. 1(2), pages 1-23, November.
  • Handle: RePEc:bpj:bejmac:v:advances.1:y:2001:i:2:n:3
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