Optimal level of government debt: matching wealth inequality and the fiscal sector
In: MEA Discussion papers 287-2014
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In: MEA Discussion papers 287-2014
In: Sonderforschungsbereich 504 08,42
We calibrate an incomplete markets large scale OLG model to the US income and wealth distribution and examine the effects of alternative government debt levels and adjustment policies on macroeconomic aggregates and welfare. We find that the government should hold negative debt. Due to the high degree of wealth and income dispersion ex ante lifetime utility increases with increasing wages (falling interest rates) by around 6% of lifetime consumption at optimal debt levels. The optimal level depends on the adjustment policy can vary by up to 70% of GDP (between -180% and -110%). With lower government debt, high income/wealth agents are always worse off. Adjusting transfers benefits the lowest income/wealth group. The largest gains are, however, experienced by agents in the middle of the income/wealth distribution: they benefit from higher wages and transfers but do not lose too much capital income.
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In: ECB Working Paper No. 1665
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In: Max Planck Institute for Social Law and Social Policy Discussion Paper No. 287-14
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In: ECB Working Paper No. 1753
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In: MEA Discussion Paper No. 180-09
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In: Deutsche Bundesbank Discussion Paper No. 20/2021
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In: ESRB: Working Paper Series No. 2018/76
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In: Journal of policy modeling: JPMOD ; a social science forum of world issues, Band 38, Heft 1, S. 181-197
ISSN: 0161-8938
In: Journal of policy modeling: JPMOD ; a social science forum of world issues
ISSN: 0161-8938
In: Journal of policy modeling: JPMOD ; a social science forum of world issues, Band 38, Heft 1, S. 181
ISSN: 0161-8938