Are deficits free?

• 成果类型: Article
• 署名作者: Brumm, Johannes; Feng, Xiangyu; Kotlikoff, Laurence; Kubler, Felix
• 署名单位: Helmholtz Association; Karlsruhe Institute of Technology; Xiamen University; Xiamen University; Boston University; University of Zurich
• 刊物名称: JOURNAL OF PUBLIC ECONOMICS
• ISSN/ISSBN: 0047-2727
• DOI: 10.1016/j.jpubeco.2022.104627
• 发表日期: 2022
• 关键词: deficits; Dynamic inefficiency; fiscal policy; Interest rates; Intergenerational risk sharing; Pay-go social security; Ponzi schemes; public debt; Social Security

摘要

Deficit finance, a.k.a. pay-go policy, is free when growth rates routinely exceed safe government borrowing rates. Or so many say. This note presents four counterexamples based on four versions of a simple OLG economy. In each version the growth rate exceeds the safe rate for one of four reasons - uninsured idiosyncratic risk, uninsured aggregate risk, policy uncertainty, and imperfect financial intermediation. Deficit finance does not directly address any of these problems. What works, respectively speaking, is progressive taxation, bilateral intergenerational risk-sharing, early policy resolution, and improved intermediation. The four examples thus show that seemingly free deficits may be more costly than they appear. Indeed, inefficient pay-go policy can even lower the government's borrowing rate, encouraging yet more deficit finance. (C) 2022 Published by Elsevier B.V.