The sustainability of bond-financed deficits: An overlapping generations approach

• 成果类型: Article
• 署名作者: Chalk, NA
• 署名单位: International Monetary Fund
• 刊物名称: JOURNAL OF MONETARY ECONOMICS
• ISSN/ISSBN: 0304-3932
• DOI: 10.1016/S0304-3932(99)00052-5
• 发表日期: 2000
• 页码: 293-328
• 关键词: Fiscal sustainability; overlapping generations; bond-financed deficits; calibration

摘要

The last decade has witnessed a dramatic and fundamental shift in the expenditure and taxation policies of many western democracies, a shift unprecedented in peacetime history. Balanced budgets have virtually disappeared from the scene. In their place, deficit financing has arisen as an alternative for many countries, becoming a focus of both professional interest and public debate. The current literature has examined this issue by assessing the likelihood that governments violate their intertemporal budget constraint. This paper takes a different tack. We incorporate permanent fiscal deficits into an overlapping generations model and evaluate the implications. We already know that if the steady-state interest rate is less than the growth rate then permanent deficits are indeed sustainable. However, this is a necessary but not a sufficient condition. In addition, these deficits and the current stock of debt must also not be 'too big'. We calibrate the model to U.S. data with plausible parameters of taste and technology, derive the theoretical limit to the maximal sustainable deficit implied by this model, and discuss the relevance of our findings for current policy issues. (C) 2000 Published by Elsevier Science B.V. All rights reserved.