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- Title
GROWTH-MAXIMIZING PUBLIC DEBT UNDER CHANGING DEMOGRAPHICS.
- Authors
BOKAN, NIKOLA; HALLETT, ANDREW HUGHES; JENSEN, SVEND E. HOUGAARD
- Abstract
This paper develops an overlapping-generations model to study the growth-maximizing level of public debt under conditions of demograhic change. It is shown that the optimal debt level depends on a positive marginal productivity of public capital. In general, it also depends on the demographic parameters, but not if the government is not allowed to borrow to cover revenue shortfalls for current age-related spending. In that context, balanced budget rules are not an approriate form of fiscal rule. The implication is that a government facing demograhic change or demands for more welfare spending will have to adjust its fiscal plans to accommodate those changes, most likely downward, if growth is to be preserved. An advantage of this model is that it allows us to determine in advance the way in which fiscal policies need to adjust as demographic parameters change.
- Subjects
PUBLIC debts; ECONOMIC development; BUDGET laws; DEMOGRAPHIC change; FISCAL policy
- Publication
Macroeconomic Dynamics, 2016, Vol 20, Issue 6, p1640
- ISSN
1365-1005
- Publication type
Article
- DOI
10.1017/S1365100514000947