On the (De)Stabilizing Effect of Public Debt in a Ramsey Model with Heterogeneous Agents
Kazuo Nishimura (),
Thomas Seegmuller () and
Alain Venditti ()
Working Papers from HAL
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: heterogeneous agents; public spending; endogenous cycles; public debt; borrowing constraint (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dge, nep-gro, nep-mac, nep-pbe and nep-upt
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Journal Article: 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 (2015)
Working Paper: On the (De)Stabilizing Effect of Public Debt in a Ramsey Model with Heterogeneous Agents (2014)
Working Paper: On the (de)Stabilizing Effect of Public Debt In a Ramsey Model with Heterogeneous Agents (2014)
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