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Government Debt and Wealth Inequality: Theory and Insights from Altruism

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  • Chatzouz, Moustafa

Abstract

High levels of either public debt or wealth inequality are detrimental to social and economic stability. At a time when reducing public debt and decreasing wealth inequality have become important policy priorities, the question arises about whether these two goals stand in conflict. Here, we show that, indeed, a reduction of government debt increases wealth inequality regardless of who bears the tax burden. Our model builds on a simple yet plausible wealth-accumulation process, where generations are linked through joy-of-giving bequests, and taxes fall on labour income. Predictions of the model are consistent with growing evidence that debt adjustments amplify economic inequalities.

Suggested Citation

  • Chatzouz, Moustafa, 2014. "Government Debt and Wealth Inequality: Theory and Insights from Altruism," MPRA Paper 77007, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:77007
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    Keywords

    Government debt; Wealth Inequality; Altruism; Over-lapping generations model.;

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General
    • H60 - Public Economics - - National Budget, Deficit, and Debt - - - General
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt

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