The economic effects of restrictions on government budget deficits

Christian Ghiglino and Karl Shell ()

No 03-1998, Working Papers from Copenhagen Business School, Department of Economics

Abstract: In overlapping-generations economies with perfect financial markets and lumpsum taxation, restrictions on the government budget deficits do not limit the set of achievable allocations. For economies in which tax instruments are distortionary and limited in number, deficits are irrelevant only in the unrealistic case in which the number of tax instruments is large relative to the number of policy goals. In particular, if the government can use only anonymous consumption taxes, then achieving the prescribed deficits without changing the equilibrium allocation will typically be impossible when the number of consumers exceeds the number of commodities. A similar result holds if consumer credit is (exogenously) restricted. Surprisingly, in this case, distortionary taxes may be more likely than lump-sum taxes to lead to the irrelevance of government deficits. Journal of Economic Literature Classification Numbers: D51, D91, E32. Keywords: Balanced Budget, Balanced-Budget Amendment, Burden of the Public Debt, Comparative Statics, Consumption Taxes, Credit Restrictions, Distortionary Taxes, Economic Policy, Government Budget Deficit, Maastricht Treaty, Optimal Taxation, Overlapping Generations.

Keywords: na (search for similar items in EconPapers)
JEL-codes: G10 (search for similar items in EconPapers)
Pages: 39 pages
Date: 1998-01-01
References: Add references at CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://openarchive.cbs.dk/cbsweb/handle/10398/7542 (application/pdf)
Full text not avaiable

Related works:
Journal Article: The Economic Effects of Restrictions on Government Budget Deficits (2000)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:hhs:cbsnow:1998_003

Ordering information: This working paper can be ordered from

Access Statistics for this paper

More papers in Working Papers from Copenhagen Business School, Department of Economics Copenhagen Business School, Department of Economics, Porcelaenshaven 16 A. 1.floor, DK-2000 Frederiksberg, Denmark. Contact information at EDIRC.
Bibliographic data for series maintained by CBS Library Research Registration Team ().