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Centre For Labour Economics

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  • Willem H. Buiter

Abstract

For an economic system not to exhibit debt neutrality it must be true that changes in the time profile of lump-sum taxes redistributes resources between heterogeneous consumers. OLD models have age heterogeneity because of a positive birth rate. Unless a bequest motive or child-to-parent gift motive is operative, a positive birth rate is sufficient for absence if debt neutrality. Uncertain lifetimes are neither necessary nor sufficient for absence of debt neutrality, with or without efficient life insurance markets. Heterogeneous survival probabilities are a sufficient condition. Heterogeneous time preference rates or elasticities of marginal utility does not destroy debt neutrality, since with common survival rates, changes in the pattern over time of lump-sum taxes do not redistribute resources. Any representative agent model, regardless of the scope and severity of capital market imperfections, will exhibit debt neutrality.

Suggested Citation

  • Willem H. Buiter, 1988. "Centre For Labour Economics," NBER Working Papers 2578, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:2578
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    File URL: http://www.nber.org/papers/w2578.pdf
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    References listed on IDEAS

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    1. Barro, Robert J, 1974. "Are Government Bonds Net Wealth?," Journal of Political Economy, University of Chicago Press, vol. 82(6), pages 1095-1117, Nov.-Dec..
    2. Buiter, Willem H, 1988. "Structural and Stabilization Aspects of Fiscal and Financial Policy in the Dependent Economy," Oxford Economic Papers, Oxford University Press, vol. 40(2), pages 220-245, June.
    3. Abel, Andrew B., 1989. "Birth, death and taxes," Journal of Public Economics, Elsevier, vol. 39(1), pages 1-15, June.
    4. Frenkel, Jacob A & Razin, Assaf, 1986. "Fiscal Policies in the World Economy," Journal of Political Economy, University of Chicago Press, vol. 94(3), pages 564-594, June.
    5. von Furstenberg, George M, 1980. "Private Saving," American Economic Review, American Economic Association, vol. 70(2), pages 177-181, May.
    6. Blanchard, Olivier J, 1985. "Debt, Deficits, and Finite Horizons," Journal of Political Economy, University of Chicago Press, vol. 93(2), pages 223-247, April.
    7. Buiter, Willem H, 1988. "Death, Birth, Productivity Growth and Debt Neutrality," Economic Journal, Royal Economic Society, vol. 98(391), pages 279-293, June.
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    Cited by:

    1. Stephan Koren, 1992. "Debt relief for Eastern Europe — Its costs and the distribution of proceeds: Some preliminary results," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 128(4), pages 639-661, December.

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