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Debt Neutrality and the Infinite–Lived Representative Consumer
Author(s) -
Crettez Bertrand,
Michel Philippe,
Wigniolle Bertrand
Publication year - 2002
Publication title -
journal of public economic theory
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.809
H-Index - 32
eISSN - 1467-9779
pISSN - 1097-3923
DOI - 10.1111/1467-9779.00110
Subject(s) - economics , debt , consumption (sociology) , externality , infinity , microeconomics , neutrality , mathematical economics , keynesian economics , macroeconomics , mathematics , mathematical analysis , social science , sociology , philosophy , epistemology
In this paper, we study the intertemporal equilibria of an infinite–lived representative agent model with public debt. We show that for a given path of government expenditures, there generally exists a continuum of equilibria depending on various debt policies. These equilibria are characterized by different paths of consumption and leisure. Two examples illustrate the results: in the first one consumption and leisure may converge to zero, in the second one consumption goes to infinity while leisure goes to its maximum value. In a third example with externalities à la Romer, the standard intertemporal equilibrium with zero public debt may be dominated by other intertemporal equilibria.