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Economics - Public Finance | Sustainability and Optimality of Public Debt

Sustainability and Optimality of Public Debt

Carlberg, Michael, Hansen, Arne

Originally published under: Carlberg, M. within the series: Contributions to Economics

2nd ed. 2013, XII, 212 p.

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  • Numerous illustrations and examples help the reader to understand and proceed quickly
  • The investigation covers the closed economy, the small open economy and a two-country setting
  • The analysis includes the Solow model, the overlapping generations model and the infinite horizon model

This book studies the sustainability and optimality of public debt under different scenarios: the closed economy, the small open economy, and a two-country setting. Sustainability refers to the existence and the stability of the long-run equilibrium. Optimality relates to the path of public debt that maximizes discounted utility. The analysis is conducted within the framework of the Solow model, the overlapping generations model and the infinite horizon model. The government can follow different strategies, it either fixes the deficit ratio or the tax rate. As a result, a fixed deficit ratio generally can be sustained. By contrast, a fixed tax rate generally cannot be sustained. Depending on the chosen fiscal strategy, there exists either an optimal deficit ratio or an optimal tax rate that maximizes the sum of consumption and government purchases per capita.

Content Level » Research

Keywords » Economic Growth - Fiscal Policy - International Economy - Public Debt - Public Finance

Related subjects » Economic Growth - Financial Economics - International Economics / European Integration - Public Finance

Table of contents 

Introduction.- A Brief Survey of the Literature.- The Closed Economy: The Solow Model.- Overlapping Generations.- Infinite Horizon.- The Small Open Economy: The Solow Model.- Overlapping Generations.- Two Countries: The Solow Model.- Synopsis.- Conclusion.- Result.

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