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Is government budget constraint binding?

Author

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  • Kim, Minseong

Abstract

A common question against macroeconomics of public debts is: why should one think government budget constraint is binding when government, at least technically, can print out money to pay for debts. Out of compatible answers, we explore an answer that is not usually invoked. While in OLG models, government bonds can successfully exist as rational bubbles, concerns of time consistency leave trade-offs in exploiting breakdown of the economy-wise public debt transversality condition. Government budget constraint is one of most certain means to fight time consistency issues and ensure that market stability is achieved.

Suggested Citation

  • Kim, Minseong, 2019. "Is government budget constraint binding?," MPRA Paper 97091, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:97091
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    File URL: https://mpra.ub.uni-muenchen.de/97091/1/MPRA_paper_97091.pdf
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    More about this item

    Keywords

    government budget constraint; transversality condition;

    JEL classification:

    • E13 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Neoclassical
    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy

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