Persistent government debt and aggregate risk distribution

• 成果类型: Article
• 署名作者: Croce, M.; Thien T Nguyen; Raymond, S.
• 署名单位: Bocconi University; Centre for Economic Policy Research - UK; Bocconi University; University System of Ohio; Ohio State University; University of North Carolina; University of North Carolina Chapel Hill
• 刊物名称: JOURNAL OF FINANCIAL ECONOMICS
• ISSN/ISSBN: 0304-405X
• DOI: 10.1016/j.jfineco.2021.01.004
• 发表日期: 2021
• 关键词: Fiscal policy; Endogenous growth risk; asset prices

摘要

When government debt is sluggish, consumption exhibits lower expected growth, more long-run uncertainty, and more long-run downside risk. Simultaneously, the risk premium on the consumption claim (Koijen et al. 2010;Lustig et al. 2013) increases and features more positive (adverse) skewness. We rationalize these findings in an endogenous growth model in which fiscal policy is distortionary, the value of innovation depends on fiscal risk, and the representative agent is sensitive to the resulting distribution of consumption risk. Our model suggests that committing to a rapid reduction of the debt-to-output ratio can enhance the value of innovation, aggregate wealth, and welfare. (C) 2021 Elsevier B.V. All rights reserved.