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The Fiscal Limit and Non-Ricardian Consumers

Alexander Richter ()

No auwp2013-19, Auburn Economics Working Paper Series from Department of Economics, Auburn University

Abstract: The U.S. faces exponentially rising entitlement obligations. I introduce a fiscal limit - a point where higher taxes are no longer a feasible financing mechanism - into a Perpetual Youth model to assess how intergenerational redistributions of wealth and the maturity of government debt impact the consequences of explosive government transfers. Intergenerational transfers of wealth strengthen the expectational effects of the fiscal limit and magnify the likelihood of stagflation. A longer average maturity of debt weakens these effects in the short/medium-runs but still increases stagflation in the long-run. Delaying reform increases the severity and duration of the stagflationary period.

Keywords: Finite Lifetime; Long-Term Debt; Policy Uncertainty; Fiscal Limit; Entitlement Reform (search for similar items in EconPapers)
JEL-codes: E62 E63 H60 E43 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-mac
Date: 2013-11
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Journal Article: Finite lifetimes, long-term debt and the fiscal limit (2015) Downloads
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