National Debt Sustainability and the Dynamics in the Economy of Diamond

David de la Croix and Philippe Michel

No 1999015, LIDAM Discussion Papers IRES from Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES)

Abstract: We analyze the effect of a constant debt policy on capital accumulation and provide an in-depth treatment of the dynamics in the economy of Diamond. We derive the conditions for avoiding a debt crisis in both the short-run and the long-run and provide geometrical tools to analyze the issue of sustainability. There is always a level of debt ensuring that any level of capital between 0 and an upper limit, and in particular the Golden rule equilibrium, exists as a steady-state equilibrium, yet it is not necessarily stable. We also discuss poverty trap issues.

Keywords: debt; sustainability; over-accumulation; Golden rule; poverty trap (search for similar items in EconPapers)
JEL-codes: E32 O41 (search for similar items in EconPapers)
Pages: 19
Date: 1999-05-01
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Working Paper: National Debt Sustainability and the Dynamics in the Economy of Diamond (1999)
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Persistent link: https://EconPapers.repec.org/RePEc:ctl:louvir:1999015

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