The determination of public debt under both aggregate and idiosyncratic uncertainty

• 成果类型: Article
• 署名作者: Chien, YiLi; Wen, Yi
• 署名单位: Federal Reserve System - USA; Federal Reserve Bank - St. Louis; Shanghai Jiao Tong University
• 刊物名称: JOURNAL OF ECONOMIC THEORY
• ISSN/ISSBN: 0022-0531
• DOI: 10.1016/j.jet.2022.105474
• 发表日期: 2022
• 关键词: Optimal public debt; Tax smoothing; Ramsey problem; incomplete markets

摘要

We use an analytically tractable, heterogeneous-agent incomplete-markets model to show that the Ramsey planner's decision to finance stochastic public expenditures implies a departure from tax smoothing and an endogenous mean-reverting force to support positive debt growth despite the government's precautionary saving motives. Specifically, the government's attempt to balance the competing incentives between its own precautionary saving (tax smoothing) and households' precautionary saving (individual consumption smoothing)-even at the cost of extra tax distortion-implies an endogenous, soft lower bound on the stochastic unit-root dynamics of optimal taxes and public debt. (c) 2022 Elsevier Inc. All rights reserved.