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DOES DEFLATION IMPINGE ON A GOVERNMENT'S FISCAL STANDING?
Author(s) -
Kondo Atsumasa,
Kitaura Koji
Publication year - 2009
Publication title -
pacific economic review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.34
H-Index - 33
eISSN - 1468-0106
pISSN - 1361-374X
DOI - 10.1111/j.1468-0106.2009.00478.x
Subject(s) - deflation , economics , government (linguistics) , preference , fiscal deficit , keynesian economics , fiscal policy , macroeconomics , monetary economics , microeconomics , monetary policy , linguistics , philosophy
This paper uses a dynamic general equilibrium model with money to investigate theoretically under what conditions deflation impinges on a government's fiscal standing. Focus is placed on an upper bound that is compatible with a no Ponzie game condition for the government and an equilibrium. A comparative dynamics analysis demonstrates that if a government's fiscal deficit is not so high, deflation has a negative impact on the upper bound, while if a government's fiscal deficit exceeds a critical level, deflation rather improves it. The critical level depends on a time stream of disposable real incomes and a preference parameter.