Welfare Analysis of Debt Policy during Recessions

Takayuki Ogawa ()
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Takayuki Ogawa: Institute of Social and Economic Research, Osaka University

No 04-14, Discussion Papers in Economics and Business from Osaka University, Graduate School of Economics

Abstract: This paper develops an overlapping-generations model with nominal wage rigidities and examines the welfare effects of debt policy during recessions. Issues of public debt stimulate aggregate consumption demand and create employment. Future generations then face both increased wage incomes and higher taxes. If the amount of outstanding bonds is already large, debt policy deteriorates the welfare of future generations by levying heavy taxes. By contrast, if the outstanding bond issue is relatively small, debt policy can be Pareto improving by creating more employment. Therefore, the welfare implications of debt policy during recessions can be discriminated from those during booms.

Keywords: debt policy; overlapping generations; welfare effects. (search for similar items in EconPapers)
JEL-codes: E12 E24 H63 (search for similar items in EconPapers)
Pages: 27 pages
Date: 2004-07
New Economics Papers: this item is included in nep-mac, nep-pbe, nep-pub and nep-sea
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Persistent link: https://EconPapers.repec.org/RePEc:osk:wpaper:04-14

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