Government Debt and Capital Accumulation in the Blanchard-Cass-Yaari OLG Model

Abstract

It is shown that although government debt in principle has an ambiguous effect on the steady state capital stock in an OLG model of the Blanchard-Cass-Yaari variety, once stability of the steady state equilibrium is imposed there is an unambiguous negative relation between the level of government debt and the capital stock.OLG model, government debt, stability, capital accumulation