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Does Deflation Impinge On A Government'S Fiscal Standing?

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  • Atsumasa Kondo
  • Koji Kitaura

Abstract

This paper uses a dynamic general equilibrium model with money to investigate theoretically under what conditions deflation impinges on a government's fiscal standing. Focus is placed on an upper bound that is compatible with a no Ponzie game condition for the government and an equilibrium. A comparative dynamics analysis demonstrates that if a government's fiscal deficit is not so high, deflation has a negative impact on the upper bound, while if a government's fiscal deficit exceeds a critical level, deflation rather improves it. The critical level depends on a time stream of disposable real incomes and a preference parameter.

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  • Atsumasa Kondo & Koji Kitaura, 2009. "Does Deflation Impinge On A Government'S Fiscal Standing?," Pacific Economic Review, Wiley Blackwell, vol. 14(5), pages 651-656, December.
    • Handle: RePEc:bla:pacecr:v:14:y:2009:i:5:p:651-656
    DOI: 10.1111/j.1468-0106.2009.00478.x
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    References listed on IDEAS

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    1. Hamilton, James D & Flavin, Marjorie A, 1986. "On the Limitations of Government Borrowing: A Framework for EmpiricalTesting," American Economic Review, American Economic Association, vol. 76(4), pages 808-819, September.
    2. Joydeep Bhattacharya & Joseph H. Haslag, 1999. "Monetary policy arithmetic: some recent contributions," Economic and Financial Policy Review, Federal Reserve Bank of Dallas, issue Q III, pages 26-36.
    3. Kudoh, Noritaka, 2005. "Monetary policy arithmetic for a deflationary economy," Economics Letters, Elsevier, vol. 87(2), pages 161-167, May.
    4. Atsumasa Kondo, 2007. "On The Sustainability Of Government Borrowing In A Dynamic General Equilibrium," Pacific Economic Review, Wiley Blackwell, vol. 12(5), pages 565-576, December.
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    Cited by:

    1. Atsumasa Kondo, 2016. "Sustainability of Public Debt in an AK Model with Complex Tax System," Discussion Papers CRR Discussion Paper Series A: General 21, Shiga University, Faculty of Economics,Center for Risk Research.
    2. Atsumasa Kondo, 2016. "Interconnection of Fiscal Policies on Sustainability of Public Debt," Discussion Papers CRR Discussion Paper Series A: General 20, Shiga University, Faculty of Economics,Center for Risk Research.
    3. Atsumasa Kondo & Koji Kitaura, 2012. "International linkage of inflation rates in a dynamic general equilibrium," Journal of Economics, Springer, vol. 107(2), pages 141-155, October.

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