Monopoly Wealth and International Debt

Jonathan Eaton

International Economic Review, 1989, vol. 30, issue 1, 33-48

Abstract: Rents generated by long-lasting government policies may be capitalized as assets. With life-cycle saving behavior, these rents raise international indebtedness. Shifts in policy that affect their capitalized value generate correlated movements in the current account and the real exchange rate. Eliminating rent-creating policies imposes a capital loss born entirely by generations currently alive, while the benefit of removing a distortion is shared between those alive and unborn generations. Reform may therefore reduce the expected welfare of everyone alive. With monopoly in the provision of nontraded goods, there may be multiple Pareto-ranked equilibria. Copyright 1989 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

Date: 1989
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