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 DP2014-03, Discussion Paper Series from Research Institute for Economics & Business Administration, Kobe University

Abstract: We introduce public debt in a Ramsey model with heterogenous agents and a public spending externality a ecting utility which is nanced by income tax and public debt. We show that public debt considered as a xed portion of GDP can have a stabilizing or destabilizing e ect 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 uctuations. 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 uctuations 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: 25pages
Date: 2014-02
New Economics Papers: this item is included in nep-dge, nep-mac and nep-pbe
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https://www.rieb.kobe-u.ac.jp/academic/ra/dp/English/DP2014-03.pdf First version, 2014 (application/pdf)

Related works:
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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