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Welfare Analysis of Debt Policy during Recessions

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  • Takayuki Ogawa

    (Institute of Social and Economic Research, Osaka University)

Abstract

This paper develops an overlapping-generations model with nominal wage rigidities and examines the welfare effects of debt policy during recessions. Issues of public debt stimulate aggregate consumption demand and create employment. Future generations then face both increased wage incomes and higher taxes. If the amount of outstanding bonds is already large, debt policy deteriorates the welfare of future generations by levying heavy taxes. By contrast, if the outstanding bond issue is relatively small, debt policy can be Pareto improving by creating more employment. Therefore, the welfare implications of debt policy during recessions can be discriminated from those during booms.

Suggested Citation

  • Takayuki Ogawa, 2004. "Welfare Analysis of Debt Policy during Recessions," Discussion Papers in Economics and Business 04-14, Osaka University, Graduate School of Economics.
    • Handle: RePEc:osk:wpaper:04-14
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    File URL: http://www2.econ.osaka-u.ac.jp/library/global/dp/0414.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    debt policy; overlapping generations; welfare effects.;
    All these keywords.

    JEL classification:

    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt

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