 r Minus gNo 28002, NBER Working Papers from National Bureau of Economic Research, Inc Abstract: Long-term data show that the dynamic efficiency condition `r>g` holds when `g` is represented by the average growth rate of real GDP if `r` is the average real rate of return on equity, `E(r^e)`, but not if `r` is the risk-free rate, `r^f`. This pattern accords with a simple disaster-risk model calibrated to fit observed equity premia. If Ponzi (chain-letter) finance by private agents and the government are precluded, the equilibrium can feature `r^f≤E(g)`, a result that does not signal dynamic inefficiency. In contrast, `E(r^e)>E(g)` is required for dynamic efficiency, implied by the model, and consistent with the data. The model satisfies Ricardian Equivalence because, without Ponzi finance by the government, a rise in safe assets from increased public debt is matched by an increase in the safe (that is, certain) present value of liabilities associated with net taxes. JEL-codes: E21 G12 O4 (search for similar items in EconPapers) Published as Robert J. Barro, 2022. "r Minus g," Review of Economic Dynamics, . Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:28002 Ordering information: This working paper can be ordered from Access Statistics for this paper More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC. |
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