Existence of equilibrium in an overlapping‐generations model with government debt

Jinlu Li and Shuanglin Lin

Journal of Public Economic Theory, 2021, vol. 23, issue 4, 691-709

Abstract: The Diamond overlapping generations (OLG) model with government debt has been widely utilized in economics, but the existence of the steady‐state equilibrium is either assumed or illustrated numerically. This paper provides easily checkable conditions for the existence and uniqueness of steady‐state equilibrium in this model. By checking the first derivatives of the production and utility functions and their interactions, we can determine whether the model has a nontrivial equilibrium or not. We show that the level of government debt, production technology, individual preference, and the growth rate are important for the existence of equilibrium. If government debt exceeds a certain level, equilibrium will not exist. Given technology, preference, and the growth rate, the upper‐bounds of the government debt‐output ratio in equilibrium can be determined based on our results.

Date: 2021
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https://doi.org/10.1111/jpet.12520

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Persistent link: https://EconPapers.repec.org/RePEc:bla:jpbect:v:23:y:2021:i:4:p:691-709

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