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Existence, multiplicity and policy prescriptions for debt sustainability in an OLG model with fiscal policy and debt

Lorenzo Cerboni Baiardi () and Ahmad Naimzada ()
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Lorenzo Cerboni Baiardi: University of Pisa

Decisions in Economics and Finance, 2020, vol. 43, issue 2, No 19, 769-786

Abstract: Abstract We consider the overlapping generation model formulated in Dioikitopoulos (J Econ Dyn Control 93:260–276, 2018). Its innovative approach involves endogenous adaptations of the deficit/surplus to debt and income levels through an empirically estimated fiscal policy rule. We improve the analysis of the model in order to tackle the issue of debt sustainability. In detail, we derive the analytic expressions of stationary states of the model as well as necessary and sufficient existence conditions.Moreover, our mathematical analysis sheds new light on the role of fiscal parameters and policy prescriptions. As a result, low deficit levels can be associated with the presence of steady-state configurations, which is a prerequisite for sustainable economic patterns to be achieved.

Keywords: Fiscal sustainability; Fiscal rules; Bond-financed deficit (search for similar items in EconPapers)
JEL-codes: C6 E6 H6 H30 (search for similar items in EconPapers)
Date: 2020
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DOI: 10.1007/s10203-020-00284-w

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