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Intergenerational Transfers and the Stability of Public Debt with Short-Lived Governments

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  • JEAN-PIERRE LAFFARGUE

Abstract

Time consistent policies and reforms of intergenerational transfers are analyzed in an overlapping generation model. Governments have preferences, which give much weight to the living generations, and they cannot commit themselves to future taxes and transfers, which will be decided by future governments with different objectives. The economy follows one of two equilibrium paths with perfect foresight. On one path, governments finance the costs of their transfers to the living by increasing public debt recklessly. Consumers pay more and more taxes to finance the cost of this debt, and the successive generations will enter a process of impoverishment. On the other path, in spite of their preference bias, governments borrow less and put the economy on a path of egalitarian consumption flows for the successive generations, with a constant ratio of public debt to national income. The mechanisms, which put an economy on one or the other equilibrium paths, are unconnected to the fundamentals of the model.

Suggested Citation

  • Jean-Pierre Laffargue, 2009. "Intergenerational Transfers and the Stability of Public Debt with Short-Lived Governments," Mathematical Population Studies, Taylor & Francis Journals, vol. 16(1), pages 79-104.
  • Handle: RePEc:taf:mpopst:v:16:y:2009:i:1:p:79-104
    DOI: 10.1080/08898480802619686
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    References listed on IDEAS

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    1. A. J. Auerbach & M. Feldstein (ed.), 2002. "Handbook of Public Economics," Handbook of Public Economics, Elsevier, edition 1, volume 4, number 4.
    2. Martin Feldstein, 2005. "Structural Reform of Social Security," Journal of Economic Perspectives, American Economic Association, vol. 19(2), pages 33-55, Spring.
    3. A. J. Auerbach & M. Feldstein (ed.), 2002. "Handbook of Public Economics," Handbook of Public Economics, Elsevier, edition 1, volume 3, number 3.
    4. Feldstein, Martin, 2005. "Structural Reform of Social Security," Scholarly Articles 2794830, Harvard University Department of Economics.
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    Cited by:

    1. Uryszek Tomasz, 2015. "Long-term Sustainability Of Public Finance In The Central And Eastern EU Member States / Długoterminowe Zrównoważenie Finansów Publicznych w Krajach Europy Środkowej i Wschodniej Należących Do Ue," Comparative Economic Research, De Gruyter Open, vol. 18(4), pages 47-61, December.

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