ON THE SUSTAINABILITY OF GOVERNMENT BORROWING IN A DYNAMIC GENERAL EQUILIBRIUM

Atsumasa Kondo

Pacific Economic Review, 2007, vol. 12, issue 5, 565-576

Abstract: Abstract. This paper constructs a dynamic general equilibrium model with money in consumers’ utility functions and investigates the equilibrium dynamics of government's debt. The limitation level of the government borrowing for which a dynamic equilibrium and the no Ponzi Game condition are compatible with each other is explicitly derived. The critical level depends on the long‐run interest rate, primary balance, money supply etc.

Date: 2007
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