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Public debt in an OLG model with imperfect competition: long-run effects of austerity programs and changes in the growth rate

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  • Skott Peter

    (Department of Economics, University of Massachusetts, Amherst, MA 01003, USA, and Aalborg University)

  • Ryoo Soon

    (Department of Finance and Economics, Adelphi University, Garden City, NY 11530, USA)

Abstract

In this paper we consider a modified version of Diamond’s OLG model. We show, first, that dynamic inefficiency may be relevant when the presence of imperfect competition is taken into account. Second, if fiscal policy is used to avoid inefficiency and maintain an optimal capital intensity, the required debt ratio will be inversely related to the growth rate. Third, austerity policies – reductions in government consumption and entitlement programs for the old generation – raise the required debt ratio.

Suggested Citation

  • Skott Peter & Ryoo Soon, 2014. "Public debt in an OLG model with imperfect competition: long-run effects of austerity programs and changes in the growth rate," The B.E. Journal of Macroeconomics, De Gruyter, vol. 14(1), pages 1-20, January.
    • Handle: RePEc:bpj:bejmac:v:14:y:2014:i:1:p:20:n:21
    DOI: 10.1515/bejm-2013-0129
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    Cited by:

    1. Peter Skott, 2016. "Aggregate demand, functional finance, and secular stagnation," European Journal of Economics and Economic Policies: Intervention, Edward Elgar Publishing, vol. 13(2), pages 172-188, September.
    2. Soon Ryoo & Peter Skott, 2017. "Fiscal and Monetary Policy Rules in an Unstable Economy," Metroeconomica, Wiley Blackwell, vol. 68(3), pages 500-548, July.
    3. Skott, Peter & Ryoo, Soon, 2015. "Functional finance and intergenerational distribution in a Keynesian OLG model," UMASS Amherst Economics Working Papers 2015-13, University of Massachusetts Amherst, Department of Economics.

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    More about this item

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity

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