Government Debt and Wealth Inequality: Theory and Insights from Altruism

Moustafa Chatzouz

MPRA Paper from University Library of Munich, Germany

Abstract: High levels of either public debt or wealth inequality are detrimental to social and economic stability. At a time when reducing public debt and decreasing wealth inequality have become important policy priorities, the question arises about whether these two goals stand in conflict. Here, we show that, indeed, a reduction of government debt increases wealth inequality regardless of who bears the tax burden. Our model builds on a simple yet plausible wealth-accumulation process, where generations are linked through joy-of-giving bequests, and taxes fall on labour income. Predictions of the model are consistent with growing evidence that debt adjustments amplify economic inequalities.

Keywords: Government debt; Wealth Inequality; Altruism; Over-lapping generations model. (search for similar items in EconPapers)
JEL-codes: D31 E62 H30 H60 H63 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:77007

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