GROWTH-MAXIMIZING PUBLIC DEBT UNDER CHANGING DEMOGRAPHICS

2015 ◽  
Vol 20 (6) ◽  
pp. 1640-1651 ◽  
Author(s):  
Nikola Bokan ◽  
Andrew Hughes Hallett ◽  
Svend E. Hougaard Jensen
Keyword(s):  
Public Debt ◽  
Overlapping Generations ◽  
Demographic Parameters ◽  
Fiscal Policies ◽  
Overlapping Generations Model ◽  
Welfare Spending ◽  
Age Related ◽  
Balanced Budget ◽  
The Government ◽  
Changing Demographics

This paper develops an overlapping-generations model to study the growth-maximizing level of public debt under conditions of demograhic change. It is shown that the optimal debt level depends on a positive marginal productivity of public capital. In general, it also depends on the demographic parameters, but not if the government is not allowed to borrow to cover revenue shortfalls for current age-related spending. In that context, balanced budget rules are not an approriate form of fiscal rule. The implication is that a government facing demograhic change or demands for more welfare spending will have to adjust its fiscal plans to accommodate those changes, most likely downward, if growth is to be preserved. An advantage of this model is that it allows us to determine in advance the way in which fiscal policies need to adjust as demographic parameters change.

Optimal Monetary Policy in an Overlapping Generations Model with Search Theoretic Monetary Exchange

2017 ◽  
Vol 17 (2) ◽  
Author(s):  
Ryoji Hiraguchi
Keyword(s):  
Overlapping Generations ◽  
Optimal Level ◽  
Optimal Monetary Policy ◽  
Overlapping Generations Model ◽  
Friedman Rule ◽  
Lump Sum ◽  
Decentralized Markets ◽  
The Government ◽  
Decentralized Market ◽  
Specific Tax

AbstractIt is well-known that in the monetary OLG models, a deviation from the Friedman rule can improve welfare because it generates intergenerational wealth transfers; however, the rule becomes optimal if the age-specific lump-sum tax policy is available. We revisit the issue using a microfounded model of money with centralized and decentralized markets. The individuals live for two periods. The young individuals work, receive wage income and hold money and capital in the centralized market. They also trade goods in the decentralized markets either as a buyer or a seller. Only money is accepted as a means of payment in the decentralized markets. The old individuals consume all their wealth in the centralized market. The quantity in the decentralized market negatively depends on the seller’s wealth, because the marginal utility of consumption in the centralized market is diminishing, but the buyer takes it as exogenous. Therefore, the equilibrium wealth exceeds the socially optimal level under the Friedman rule. A positive nominal interest rate makes money holdings costly, reduces wealth and improves welfare, even if the government optimally uses the age-specific tax.

Revisiting the Sustainability of India’s Fiscal Deficit

2021 ◽  
pp. 001946622110066
Author(s):  
Manisha Devi ◽  
Amiya Sarma
Keyword(s):  
Public Debt ◽  
Jel Classification ◽  
Annual Data ◽  
Data Sets ◽  
Fiscal Deficit ◽  
Fiscal Policies ◽  
Time Period ◽  
Sustainability Issue ◽  
Fiscal Reaction Function ◽  
The Government

Growing fiscal deficit and public debt has been a cause of concern for the government, economists and the policymakers of India since long. Various studies have tried to test the sustainability issue of India’s fiscal policies applying various methodologies time to time. However, the results obtained are ambiguous. Such ambiguity might emerge because of the various methodologies adopted for the respective studies. In view of this, the current study attempts to revisit the sustainability issue of India’s fiscal deficit using up-to-date time series methodologies on the annual data sets ranging from the time period 1981 to 2019. Apart from this, the study also tries to verify the results using a model based on fiscal reaction function (FRF) developed by Henning Bohn. The study found the fiscal deficit of India to be sustainable. JEL Classification: H61, H62, H63, H68

scholarly journals DEALING WITH UNDOCUMENTED IMMIGRANTS: THE WELFARE EFFECTS OF AMNESTIES AND DEPORTATIONS

2017 ◽  
Vol 83 (4) ◽  
pp. 445-492 ◽  
Author(s):  
Joël Machado
Keyword(s):  
Undocumented Immigrants ◽  
Overlapping Generations ◽  
Migration Policy ◽  
The United States ◽  
Welfare Effects ◽  
Government Budget ◽  
Overlapping Generations Model ◽  
Wage Effects ◽  
The Government ◽  
The Impact

Abstract:The effects on agents’ welfare of two different policies dealing with undocumented immigrants, amnesties and deportations, are assessed. I develop a two-period overlapping generations model which accounts for the ex-ante production by undocumented workers and their impact on the government budget. Additional channels, such as the discrimination on the labor market and a different productivity of regularized workers are discussed. The impact of a migration policy depends on the wage effects of the legalized/deported workers and their net fiscal contribution. The calibration of the model for the United States in 2014 allows to disentangle the channels at work. Overall, the impact of the two policies on natives’ welfare is limited (between −0.1% and +0.15%). Retired agents benefit from an amnesty and are harmed by a deportation. The effect on workers is ambiguous and depends on the wage and fiscal effects in addition to the change in the returns on savings.

scholarly journals FACING DEMOGRAPHIC CHALLENGES: PENSION CUTS OR TAX HIKES?

2018 ◽  
Vol 23 (2) ◽  
pp. 625-673 ◽  
Author(s):  
George Kudrna ◽  
Chung Tran ◽  
Alan Woodland
Keyword(s):  
Government Spending ◽  
Overlapping Generations ◽  
Welfare Effects ◽  
Policy Reforms ◽  
Overlapping Generations Model ◽  
Political Complexity ◽  
Demographic Challenges ◽  
Age Related ◽  
Advanced Economies ◽  
Fiscal Pressure

A challenge that faces many advanced economies is how to finance age-related spending programs as the population ages. In this paper, we investigate two policy options–pension cuts and tax hikes–to mitigate fiscal pressure arising in the special context of Australia, whose population is ageing fast while growing substantially in size due to immigration. Using a computable overlapping generations model, we find that while both policy reforms can achieve a similar fiscal goal, they lead to different distributional and welfare effects across income groups over time. Future generations prefer pension cuts, whereas current generations prefer tax hikes to finance government spending commitments. Moreover, within the tax hike option, taxing income or consumption results in opposing macroeconomic and welfare effects. Indeed, our opposing intra- and inter-temporal welfare outcomes highlight some political complexity when devising a more sustainable tax-transfer system.

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