Debt Neutrality and the Infinite-Lived Representative Consumer

Abstract

In this paper, we study the intertemporal equilibria of an infinite-lived representative agent model with public debt. We show that for a given path of government expenditures, there generally exists a continuum of equilibria depending on various debt policies. These equilibria are characterized by different paths of consumption and leisure. Two examples illustrate the results: in the first one consumption and leisure may converge to zero, in the second one consumption goes to infinity while leisure goes to its maximum value. In a third example with externalities à la Romer, the standard intertemporal equilibrium with zero public debt may be dominated by other intertemporal equilibria. Copyright Blackwell Publishing, Inc. 2002.

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Research Papers in Economics

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Last time updated on 7/6/2012

This paper was published in Research Papers in Economics.

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