IDEAS home Printed from https://ideas.repec.org/a/wly/emetrp/v93y2025i5p1601-1633.html
   My bibliography  Save this article

Running Primary Deficits Forever in a Dynamically Efficient Economy: Feasibility and Optimality

Author

Listed:
  • Andrew B. Abel
  • Stavros Panageas

Abstract

Government debt can be rolled over forever without primary surpluses in some stochastic economies, including some economies that are dynamically efficient. In an overlapping‐generations model with constant growth rate, g, of labor‐augmenting productivity, and with shocks to the durability of capital, we show that along a balanced growth path, the maximum sustainable ratio of bonds to capital is attained when the risk‐free interest rate, rf, equals g. Furthermore, this maximal ratio maximizes utility per capita along a balanced growth path and ensures that the economy is dynamically efficient.

Suggested Citation

  • Andrew B. Abel & Stavros Panageas, 2025. "Running Primary Deficits Forever in a Dynamically Efficient Economy: Feasibility and Optimality," Econometrica, Econometric Society, vol. 93(5), pages 1601-1633, September.
  • Handle: RePEc:wly:emetrp:v:93:y:2025:i:5:p:1601-1633
    DOI: 10.3982/ECTA22749
    as

    Download full text from publisher

    File URL: https://doi.org/10.3982/ECTA22749
    Download Restriction: no

    File URL: https://libkey.io/10.3982/ECTA22749?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wly:emetrp:v:93:y:2025:i:5:p:1601-1633. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: https://edirc.repec.org/data/essssea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.