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The economic effects of restrictions on government budget deficits: imperfect private credit markets

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  • Christian Ghiglino
  • Karl Shell

Abstract

The present paper is an extension of Ghiglino and Shell [7] to the case of imperfect consumer credit markets. We show that with constraints on individual credit and only anonymous (i.e., non-personalized) lump-sum taxes, strong (or “global”) irrelevance of government budget deficits is not possible, and weak (or “local”) irrelevance can hold only in very special situations. This is in sharp contrast to the result for perfect credit markets. With credit constraints and anonymous consumption taxes, weak irrelevance holds if the number of tax instruments is sufficiently large and at least one consumer's credit constraint is not binding. This is an extension of the result for perfect credit markets. Copyright Springer-Verlag Berlin Heidelberg 2003

Suggested Citation

  • Christian Ghiglino & Karl Shell, 2003. "The economic effects of restrictions on government budget deficits: imperfect private credit markets," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 21(2), pages 399-421, March.
  • Handle: RePEc:spr:joecth:v:21:y:2003:i:2:p:399-421
    DOI: 10.1007/s00199-002-0288-5
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    File URL: http://hdl.handle.net/10.1007/s00199-002-0288-5
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    Cited by:

    1. Richard Evans & Kerk Phillips, 2014. "OLG Life Cycle Model Transition Paths: Alternate Model Forecast Method," Computational Economics, Springer;Society for Computational Economics, vol. 43(1), pages 105-131, January.

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    Keywords

    Keywords and Phrases: Balanced-budget amendment; Consumption taxes; Credit constraints; Government budget deficit irrelevance; Lump-sum taxes; Overlapping generations.; JEL Classification Numbers: D50; D90; E52; E60; H62; H63.;

    JEL classification:

    • D51 - Microeconomics - - General Equilibrium and Disequilibrium - - - Exchange and Production Economies
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
    • O23 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Fiscal and Monetary Policy in Development

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