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Public Debt Places No Burden on Future Generations under Demand Shortage

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  • Takayuki Ogawa
  • Yoshiyasu Ono

Abstract

In a Diamond-type overlapping-generations setting public debt issuanceplaces no burden on future generations including those who repay the debt if prices and wages are fixed and unemployment occurs in the periods in which public bonds are issued and repaid. Whether the collected fund is spent on government purchases or transfers to the present generation, public bond issuance stimulates aggregate demand and creates additional employment of future generations, which yields additional income that is large enough to cover their tax burden. This property is true whether the debt is repaid by children or grandchildren.

Suggested Citation

  • Takayuki Ogawa & Yoshiyasu Ono, 2010. "Public Debt Places No Burden on Future Generations under Demand Shortage," ISER Discussion Paper 0791, Institute of Social and Economic Research, Osaka University.
    • Handle: RePEc:dpr:wpaper:0791
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    File URL: https://www.iser.osaka-u.ac.jp/library/dp/2010/DP0791.pdf
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    1. Lopez-Garcia, Miguel-Angel, 2008. "On the role of public debt in an OLG model with endogenous labor supply," Journal of Macroeconomics, Elsevier, vol. 30(3), pages 1323-1328, September.
    2. Gilles Saint-Paul, 1992. "Fiscal Policy in an Endogenous Growth Model," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 107(4), pages 1243-1259.
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    Cited by:

    1. Debi Prasad Bal & Badri Narayan Rath, 2016. "Is Public Debt a Burden for India?," Economic Papers, The Economic Society of Australia, vol. 35(2), pages 184-201, June.

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