Debt Policy in a Competitive Two-Sector Overlapping Generations Model

Partha Sen
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Partha Sen: Delhi School of Economics

No 137, Working papers from Centre for Development Economics, Delhi School of Economics

Abstract: We analyse debt policy in a two-period, two-sector overlapping generations model with Leontief technologies. We find that debt, issued to transfer resources to the initially old, could be welfare improving in the new steady state for an economy which satisfies the usual conditions for dynamic efficiency viz. the rate of interest is at least as great as the population growth rate. Out of steady state, the only potential losers are the recipients of the transfer. This could happen if the interest rate were to fall sufficiently to offset the effect of the transfer. From generation one onwards everyone becomes better off (under reasonable asumptions). Contrast this with a one-sector model where the definite gainers are those who are alive on date one.

Keywords: Government Debt; Overlapping Generations; Two-Sector Models; Dynamic Efficiency. (search for similar items in EconPapers)
JEL-codes: E2 E6 (search for similar items in EconPapers)
Pages: 18 pages
Date: 2005-07
New Economics Papers: this item is included in nep-dge, nep-mac and nep-pbe
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Related works:
Working Paper: Debt Policy in a Competitive Two-Sector Overlapping Generations Model (2010)
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