Arbeitspapier

Governmental debt, interest policy, and tax stabilization in a stochastic OLG economy

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The paper analyzes the sustainability of governmental debt and its welfare properties in an overlapping generations economy with stochastic production and capital accumulation. In the absence of taxation, equilibria with positive debt generically converge to debtless eauilibria are typically inefficient. It is shown that this may be overcome by a tax on labor income which stabilizes the level of debt against unfavorable shocks. A long-run welfare criterion is formulated which measures consumer utility at the stabilized equlibrium. Based on this criterion, the welfare effects of different interest policies and alternative stabilization objectives are investigated. The results offer a simple explanation why empirical debt levels are high and typically yield a riskless return despite both fails to be optimal in the long run.

Sprache
Englisch

Erschienen in
Series: KIT Working Paper Series in Economics ; No. 14

Klassifikation
Wirtschaft
Existence and Stability Conditions of Equilibrium
Macroeconomics: Consumption, Saving, Production, Employment, and Investment: Forecasting and Simulation: Models and Applications
Fiscal Policy
Taxation and Subsidies: Efficiency; Optimal Taxation
National Debt; Debt Management; Sovereign Debt
Thema
OLG
governmental debt
interest policy
risk sharing
tax stabilization
stabilized equilibrium
long-run welfare
Öffentliche Schulden
Zinspolitik
Lohnsteuer
Steuerpolitik
Overlapping Generations
Theorie

Ereignis
Geistige Schöpfung
(wer)
Hillebrand, Marten
Ereignis
Veröffentlichung
(wer)
Karlsruher Institut für Technologie (KIT), Institut für Volkswirtschaftslehre (ECON)
(wo)
Karlsruhe
(wann)
2011

DOI
doi:10.5445/IR/1000021842
Handle
URN
urn:nbn:de:swb:90-218422
Letzte Aktualisierung
17.09.2025, 11:45 MESZ

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Objekttyp

  • Arbeitspapier

Beteiligte

  • Hillebrand, Marten
  • Karlsruher Institut für Technologie (KIT), Institut für Volkswirtschaftslehre (ECON)

Entstanden

  • 2011

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