Running Primary Deficits Forever in a Dynamically Efficient Economy: Feasibility and Optimality / Andrew B. Abel, Stavros Panageas.

Format:

Book

Author/Creator:

Abel, Andrew B.

Contributor:

National Bureau of Economic Research.

Panageas, Stavros.

Series:

Working Paper Series (National Bureau of Economic Research) no. w30554.

NBER working paper series no. w30554

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2022.

Summary:

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 riskfree interest rate, r[sub]f, equals g. Furthermore, this maximal ratio maximizes utility per capita along a balanced growth path and ensures that the economy is dynamically efficient.

Notes:

Print version record

October 2022.