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On the (De)Stabilizing Effect of Public Debt in a Ramsey Model with Heterogeneous Agents

Kazuo Nishimura, Carine Nourry, Thomas Seegmuller and Alain Venditti

No 1436, AMSE Working Papers from Aix-Marseille School of Economics, France

Abstract: We introduce public debt in a Ramsey model with heterogenous agents and a public spending externality affecting utility which is financed by income tax and public debt. We show that public debt considered as a fixed portion of GDP can have a stabilizing or destabilizing effect depending on some fundamental elasticities. When the public spending externality is weak and the elasticity of capital labor substitution is low enough, public debt can only be destabilizing, generating damped or persistent macroeconomic fluctuations. Whereas when the public spending externality and the elasticity of capital labor substitution are strong enough, public debt can be stabilizing, driving to monotone convergence an economy experiencing damped or persistent fluctuations without debt.

Keywords: endogenous cycles; heterogeneous agents; public spending; public debt; borrowing constraint (search for similar items in EconPapers)
JEL-codes: C62 E32 H23 (search for similar items in EconPapers)
Pages: 33 pages
Date: 2014-06, Revised 2014-06
New Economics Papers: this item is included in nep-dge, nep-ger, nep-mac, nep-pbe and nep-upt
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Related works:
Journal Article: On the (de)stabilizing effect of public debt in a Ramsey model with heterogeneous agents (2015) Downloads
Working Paper: On the (De)Stabilizing Effect of Public Debt in a Ramsey Model with Heterogeneous Agents (2015)
Working Paper: On the (De)Stabilizing Effect of Public Debt in a Ramsey Model with Heterogeneous Agents (2014) Downloads
Working Paper: On the (de)Stabilizing Effect of Public Debt In a Ramsey Model with Heterogeneous Agents (2014) Downloads
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