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Debt Policy in a Competitive Two-Sector Overlapping Generations Model

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  • Partha Sen

Abstract

In this paper debt policy in a two-period, two-sector overlapping generations model with Leontief technologies has been analysed. It has been found that debt, issued to transfer resources to the initially old, could be welfare improving in the new steady state for an economy which satisfies the usual conditions for dynamic efficiency viz. the rate of interest is at least as great as the population growth rate. [Working paper No. 137]

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  • Partha Sen, 2010. "Debt Policy in a Competitive Two-Sector Overlapping Generations Model," Working Papers id:2914, eSocialSciences.
    • Handle: RePEc:ess:wpaper:id:2914
    Note: Institutional Papers
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    References listed on IDEAS

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    1. Andrew B. Abel & N. Gregory Mankiw & Lawrence H. Summers & Richard J. Zeckhauser, 1989. "Assessing Dynamic Efficiency: Theory and Evidence," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 56(1), pages 1-19.
    2. Bhattacharya, Joydeep & Haslag, Joseph & Russell, Steven, 2005. "The role of money in two alternative models: When is the Friedman rule optimal, and why?," Journal of Monetary Economics, Elsevier, vol. 52(8), pages 1401-1433, November.
    3. Buiter, Willem H, 1981. "Time Preference and International Lending and Borrowing in an Overlapping-Generations Model," Journal of Political Economy, University of Chicago Press, vol. 89(4), pages 769-797, August.
    4. Shell, Karl, 1971. "Notes on the Economics of Infinity," Journal of Political Economy, University of Chicago Press, vol. 79(5), pages 1002-1011, Sept.-Oct.
    5. Galor, Oded, 1992. "A Two-Sector Overlapping-Generations Model: A Global Characterization of the Dynamical System," Econometrica, Econometric Society, vol. 60(6), pages 1351-1386, November.
    6. Persson, Torsten, 1985. "Deficits and intergenerational welfare in open economies," Journal of International Economics, Elsevier, vol. 19(1-2), pages 67-84, August.
    7. Svend Erik Hougaard Jensen & Søren Bo Nielsen, 1995. "Population ageing, public debt and sustainable fiscal policy," Fiscal Studies, Institute for Fiscal Studies, vol. 16(2), pages 1-20, May.
    8. Calvo, Guillermo A., 1978. "On the indeterminacy of interest rates and wages with perfect foresight," Journal of Economic Theory, Elsevier, vol. 19(2), pages 321-337, December.
    9. Cremers, Emily, 2001. "General Equilibrium with Trade Balance and Real Interest Rate Parity," Staff General Research Papers Archive 34859, Iowa State University, Department of Economics.
    10. Ihori, Toshihiro, 1978. "The Golden Rule and the Role of Government in a Life Cycle Growth Model," American Economic Review, American Economic Association, vol. 68(3), pages 389-396, June.
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    More about this item

    Keywords

    Government Debt; Overlapping Generations; Two-Sector Models; Dynamic Efficiency;
    All these keywords.

    JEL classification:

    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook

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