GROWTH-MAXIMIZING PUBLIC DEBT UNDER CHANGING DEMOGRAPHICS

Nikola Bokan, Andrew Hughes Hallett and Svend E. Hougaard Jensen

Macroeconomic Dynamics, 2016, vol. 20, issue 6, 1640-1651

Abstract: This paper develops an overlapping-generations model to study the growth-maximizing level of public debt under conditions of demograhic change. It is shown that the optimal debt level depends on a positive marginal productivity of public capital. In general, it also depends on the demographic parameters, but not if the government is not allowed to borrow to cover revenue shortfalls for current age-related spending. In that context, balanced budget rules are not an approriate form of fiscal rule. The implication is that a government facing demograhic change or demands for more welfare spending will have to adjust its fiscal plans to accommodate those changes, most likely downward, if growth is to be preserved. An advantage of this model is that it allows us to determine in advance the way in which fiscal policies need to adjust as demographic parameters change.

Date: 2016
References: Add references at CitEc
Citations: View citations in EconPapers (5)

Downloads: (external link)
https://www.cambridge.org/core/product/identifier/ ... type/journal_article link to article abstract page (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cup:macdyn:v:20:y:2016:i:06:p:1640-1651_00

Access Statistics for this article

More articles in Macroeconomic Dynamics from Cambridge University Press Cambridge University Press, UPH, Shaftesbury Road, Cambridge CB2 8BS UK.
Bibliographic data for series maintained by Kirk Stebbing ().