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Persistent Government Debt and Aggregate Risk Distribution / Mariano Max Croce, Thien T. Nguyen, Steve Raymond.
- Format:
- Book
- Author/Creator:
- Croce, Mariano M.
- Series:
- Working Paper Series (National Bureau of Economic Research) no. w26177.
- NBER working paper series no. w26177
- Language:
- English
- Physical Description:
- 1 online resource: illustrations (black and white);
- Place of Publication:
- Cambridge, Mass. National Bureau of Economic Research 2019.
- Summary:
- When government debt is sluggish, consumption exhibits lower expected growth, more long-run uncertainty, and more long-run downside risk. Simultaneously, the risk premium on the consumption claim (Koijen et al. (2010), Lustig et al. (2013)) increases and features more positive (adverse) skewness. We rationalize these findings in an endogenous growth model in which fiscal policy is distortionary, the value of innovation depends on fiscal risk, and the representative agent is sensitive to the resulting distribution of consumption risk. Our model suggests that committing to a rapid reduction of the debt-to-output ratio can enhance the value of innovation, aggregate wealth, and welfare.
- Notes:
- Print version record
- August 2019.
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