Research output: Contribution to journal › Article › peer-review
Maximum Sustainable Government Debt in the Perpetual Youth Model. / Rankin, Neil.
In: Bulletin of Economic Research, Vol. Early Online, No. n/a, 2013, p. n/a.Research output: Contribution to journal › Article › peer-review
}
TY - JOUR
T1 - Maximum Sustainable Government Debt in the Perpetual Youth Model
AU - Rankin, Neil
PY - 2013
Y1 - 2013
N2 - The overlapping-generations model of Blanchard, based on a constant probability of death, is used to study the maximum level of government debt consistent with the existence of a steady state equilibrium. In both a small open and a closed economy it is shown that maximum sustainable debt robustly occurs where the consumption of individual households reaches zero, the limit of its feasible range. Taxation absorbs all of the household's labour income here. In a closed economy, at this point the real interest rate also hits a ‘ceiling’ given by a simple combination of preference parameters and the death probability.
AB - The overlapping-generations model of Blanchard, based on a constant probability of death, is used to study the maximum level of government debt consistent with the existence of a steady state equilibrium. In both a small open and a closed economy it is shown that maximum sustainable debt robustly occurs where the consumption of individual households reaches zero, the limit of its feasible range. Taxation absorbs all of the household's labour income here. In a closed economy, at this point the real interest rate also hits a ‘ceiling’ given by a simple combination of preference parameters and the death probability.
UR - http://www.scopus.com/inward/record.url?scp=84872440242&partnerID=8YFLogxK
U2 - 10.1111/j.1467-8586.2012.00475.x
DO - 10.1111/j.1467-8586.2012.00475.x
M3 - Article
VL - Early Online
SP - n/a
JO - Bulletin of Economic Research
JF - Bulletin of Economic Research
SN - 0307-3378
IS - n/a
ER -