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Debt Neutrality and the Infinite–Lived Representative Consumer

Author

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  • Bertrand Crettez
  • Philippe Michel
  • Bertrand Wigniolle

Abstract

In this paper, we study the intertemporal equilibria of an infinite–lived representative agent model with public debt. We show that for a given path of government expenditures, there generally exists a continuum of equilibria depending on various debt policies. These equilibria are characterized by different paths of consumption and leisure. Two examples illustrate the results: in the first one consumption and leisure may converge to zero, in the second one consumption goes to infinity while leisure goes to its maximum value. In a third example with externalities à la Romer, the standard intertemporal equilibrium with zero public debt may be dominated by other intertemporal equilibria.

Suggested Citation

  • Bertrand Crettez & Philippe Michel & Bertrand Wigniolle, 2002. "Debt Neutrality and the Infinite–Lived Representative Consumer," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 4(4), pages 499-521, October.
    • Handle: RePEc:bla:jpbect:v:4:y:2002:i:4:p:499-521
    DOI: 10.1111/1467-9779.00110
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    Cited by:

    1. Michel, Philippe & Thibault, Emmanuel, 2007. "The failure of Ricardian equivalence under dynastic altruism," Journal of Mathematical Economics, Elsevier, vol. 43(5), pages 606-614, June.
    2. Kuhle, Wolfgang, 2012. "Dynamic efficiency and the two-part golden rule with heterogeneous agents," Journal of Macroeconomics, Elsevier, vol. 34(4), pages 992-1006.
    3. Crettez, Bertrand & Michel, Philippe & Wigniolle, Bertrand, 2003. "Jusqu’où l’État peut-il s’endetter? Une approche par les modèles à générations imbriquées d’agents," L'Actualité Economique, Société Canadienne de Science Economique, vol. 79(3), pages 277-295, Septembre.

    More about this item

    JEL classification:

    • D9 - Microeconomics - - Micro-Based Behavioral Economics
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H6 - Public Economics - - National Budget, Deficit, and Debt

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