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Dynamic Efficiency, the Riskless Rate, and Debt Ponzi Games under Uncertainty

Author

Listed:
  • Olivier Blanchard
  • Philippe Weil

    (OFCE - Observatoire français des conjonctures économiques (Sciences Po) - Sciences Po - Sciences Po)

Abstract

In a dynamically efficient economy, can a government roll its debt forever and avoid the need to raise taxes? In a series of examples of economies with zero growth, this paper shows that such Ponzi games may be infeasible even when the average rate of return on bonds is negative, and may be feasible even when the average rate of return on bonds is positive. The paper then reveals the structure which underlies these examples.

Suggested Citation

  • Olivier Blanchard & Philippe Weil, 1992. "Dynamic Efficiency, the Riskless Rate, and Debt Ponzi Games under Uncertainty," SciencePo Working papers Main hal-03399126, HAL.
    • Handle: RePEc:hal:spmain:hal-03399126
    Note: View the original document on HAL open archive server: https://hal-sciencespo.archives-ouvertes.fr/hal-03399126
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    References listed on IDEAS

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