Arbeitspapier
Deep habits and the macroeconomic effects of government debt
In this paper, we study the effects of government debt on macroeconomic aggregates in a non-Ricardian framework. We develop a micro-founded framework which combines time-varying markups, endogenous labor supply and overlapping generations based on infinitely-lived families. The main contribution of this paper is to provide a new transmission mechanism of public debt through the countercyclical markup movements induced by external deep habits. We analyze the effects of debt-financed tax cuts. We show that the interest rate rises, entailing higher markups, which imply a fall in employment and consumption. It is particularily noteworthy that, even without capital, a crowding out effect of government debt is obtained in the long run. However, the short-run expansionary effect of debt-financed tax cuts, which would eventually be expected in a non-Ricardian framework, fails to occur. This is due to our flexible-price framework. On the other hand, we show that incorporating sticky prices in our model causes debt-financed tax cuts to have a short-run expansionary effect while preserving the long-run contractionary effect.
- ISBN
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978-3-86558-655-1
- Language
-
Englisch
- Bibliographic citation
-
Series: Discussion Paper Series 1 ; No. 2010,22
- Classification
-
Wirtschaft
Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
Monetary Policy
- Subject
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Wealth Effects
Fiscal Policy
Public Debt Shock
Deep Habits
Overlapping Generations
Monopolistic Competition
Öffentliche Schulden
Makroökonomischer Einfluss
Crowding out
Steuerpolitik
Vermögenseffekt
Overlapping Generations
Monopolistischer Wettbewerb
Theorie
- Event
-
Geistige Schöpfung
- (who)
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Aloui, Rym
- Event
-
Veröffentlichung
- (who)
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Deutsche Bundesbank
- (where)
-
Frankfurt a. M.
- (when)
-
2010
- Handle
- Last update
-
10.03.2025, 11:44 AM CET
Data provider
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. If you have any questions about the object, please contact the data provider.
Object type
- Arbeitspapier
Associated
- Aloui, Rym
- Deutsche Bundesbank
Time of origin
- 2010
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