Two equivalence theorems for government finance

Dahai Yu

No 622, International Finance Discussion Papers from Board of Governors of the Federal Reserve System (U.S.)

Abstract: This paper studies the effects of a path change in government debt composition and aggregate transfers on allocations and prices. It is shown that the effects are zero under some agent-specific transfer scheme even when markets are incomplete. If markets are complete, then the effects are zero under any transfer scheme that leaves each agent's lifetime resource unchanged if and only if agents are always collectively compensated for next period's return change. The infinite-horizon framework used has an arbitrary number of assets with arbitrary returns and an arbitrary mixture of finitely and infinitely lived agents.

Keywords: Finance; Public (search for similar items in EconPapers)
Date: 1998
New Economics Papers: this item is included in nep-cfn and nep-pub
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