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Debt Neutrality and the Infinite–Lived Representative Consumer

Bertrand Crettez, Philippe Michel and Bertrand Wigniolle

Journal of Public Economic Theory, 2002, vol. 4, issue 4, 499-521

Abstract: In this paper, we study the intertemporal equilibria of an infinite–lived representative agent model with public debt. We show that for a given path of government expenditures, there generally exists a continuum of equilibria depending on various debt policies. These equilibria are characterized by different paths of consumption and leisure. Two examples illustrate the results: in the first one consumption and leisure may converge to zero, in the second one consumption goes to infinity while leisure goes to its maximum value. In a third example with externalities à la Romer, the standard intertemporal equilibrium with zero public debt may be dominated by other intertemporal equilibria.

Date: 2002
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Working Paper: Debt Neutrality and the Infinite-Lived Representative Consumer (2000)
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