[go: up one dir, main page]
IDEAS home Printed from https://ideas.repec.org/a/bpj/germec/v23y2022i1p21-60n2.html
   My bibliography  Save this article

Dynamic inefficiency and fiscal interventions in an economy with land and transaction costs

Author

Listed:
  • Hellwig Martin F.

    (64376 Max Planck Institute for Research on Collective Goods, Kurt-Schumacher-Str. 10, D - 53113 Bonn, Germany)

Abstract
The paper contributes to the discussion on whether real interest rates below real growth rates can be taken as evidence of dynamic inefficiency so that some fiscal intervention may be called for. A seemingly killing objection points to land, a non-produced durable asset in positive supply, as a reason why dynamic inefficiency can be ruled out. If real interest rates were expected to be below real growth rates forever, the value of land would be unbounded, which is incompatible with equilibrium. The paper shows that this objection is not robust to the presence of an arbitrarily small per-unit-of-value transaction cost. The paper also specifies fiscal interventions that provide for Pareto improvements even though they involve a resource cost. For the debate about public debt policy, the land argument is a red herring because it is incompatible with the presence of fiat money and debt denominated in units of fiat money.

Suggested Citation

  • Hellwig Martin F., 2022. "Dynamic inefficiency and fiscal interventions in an economy with land and transaction costs," German Economic Review, De Gruyter, vol. 23(1), pages 21-60, February.
    • Handle: RePEc:bpj:germec:v:23:y:2022:i:1:p:21-60:n:2
    DOI: 10.1515/ger-2020-0110
    as

    Download full text from publisher

    File URL: https://doi.org/10.1515/ger-2020-0110
    Download Restriction: For access to full text, subscription to the journal or payment for the individual article is required.
    File URL: https://libkey.io/10.1515/ger-2020-0110?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Olivier J Blanchard, 2019. "Public Debt: Fiscal and Welfare Costs in a Time of Low Interest Rates," Policy Briefs PB19-2, Peterson Institute for International Economics.
    2. Olivier Blanchard, 2019. "Public Debt and Low Interest Rates," American Economic Review, American Economic Association, vol. 109(4), pages 1197-1229, April.
    3. Stefan Homburg, 2014. "Overaccumulation, Public Debt and the Importance of Land," German Economic Review, Verein für Socialpolitik, vol. 15(4), pages 411-435, November.
    4. Paul A. Samuelson, 1958. "An Exact Consumption-Loan Model of Interest with or without the Social Contrivance of Money," Journal of Political Economy, University of Chicago Press, vol. 66(6), pages 467-467.
    5. Tirole, Jean, 1985. "Asset Bubbles and Overlapping Generations," Econometrica, Econometric Society, vol. 53(6), pages 1499-1528, November.
    6. Lawrence H Summers, 2014. "U.S. Economic Prospects: Secular Stagnation, Hysteresis, and the Zero Lower Bound," Business Economics, Palgrave Macmillan;National Association for Business Economics, vol. 49(2), pages 65-73, April.
    7. Stefan Homburg, 1991. "Interest and Growth in an Economy with Land," Canadian Journal of Economics, Canadian Economics Association, vol. 24(2), pages 450-459, May.
    8. Changyong Rhee, 1991. "Dynamic Inefficiency in an Economy with Land," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 58(4), pages 791-797.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Martin Hellwig, 2021. "Der Zinssatz ist kein Preis [The Interest Rate Should not be Interpreted as a Price]," Wirtschaftsdienst, Springer;ZBW - Leibniz Information Centre for Economics, vol. 101(11), pages 862-869, November.
    2. Martin F. Hellwig, 2024. "Dynamic efficiency and inefficiency in a class of overlapping-generations economies with multiple assets," Discussion Paper Series of the Max Planck Institute for Research on Collective Goods 2024_08, Max Planck Institute for Research on Collective Goods.
    3. Hellwig, Martin F., 2020. "Property taxes and dynamic inefficiency: A correction of a “correction”," Economics Letters, Elsevier, vol. 197(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Martin F. Hellwig, 2021. "Safe Assets, Risky Assets, and Dynamic Inefficiency in Overlapping-Generations Economies," Discussion Paper Series of the Max Planck Institute for Research on Collective Goods 2021_10, Max Planck Institute for Research on Collective Goods.
    2. Siemers Lars-H. & Gebhardt Heinz, 2020. "Die strukturelle Besserung der Länderfinanzen in der Niedrigzinsphase: die trügerische Leichtigkeit des Scheins," Perspektiven der Wirtschaftspolitik, De Gruyter, vol. 21(1), pages 54-78, April.
    3. Kreamer, Jonathan, 2022. "Financial intermediation and the supply of liquidity," Journal of Financial Stability, Elsevier, vol. 61(C).
    4. Robin Döttling & Enrico Perotti, 2015. "Mortgage Finance and Technological Change," Tinbergen Institute Discussion Papers 15-079/IV, Tinbergen Institute.
    5. Barbie, Martin & Hagedorn, Marcus & Kaul, Ashok, 2000. "Dynamic Efficiency and Pareto Optimality in a Stochastic OLG Model with Production and Social Security," IZA Discussion Papers 209, Institute of Labor Economics (IZA).
    6. Jordi Galí, 2021. "Monetary Policy and Bubbles in a New Keynesian Model with Overlapping Generations," American Economic Journal: Macroeconomics, American Economic Association, vol. 13(2), pages 121-167, April.
    7. Sweder van Wijnbergen & Stan Olijslagers & Nander de Vette, 2020. "Debt sustainability when r - g smaller than 0: no free lunch after all," Tinbergen Institute Discussion Papers 20-079/VI, Tinbergen Institute.
    8. van Wijnbergen, Sweder & Olijslagers, Stan & de Vette, Nander, 2020. "Debt sustainability when r - g," CEPR Discussion Papers 15478, C.E.P.R. Discussion Papers.
    9. Knolle, Julia, 2020. "Prosperity in a Low Interest Environment," MPRA Paper 104332, University Library of Munich, Germany.
    10. Martin F. Hellwig, 2023. "Overlapping-Generations Economies under Uncertainty: Dynamic Inefficiency/Efficiency with Multiple Assets and no Labour," Discussion Paper Series of the Max Planck Institute for Research on Collective Goods 2023_04, Max Planck Institute for Research on Collective Goods.
    11. Daisuke Ikeda & Toan Phan & Timothy Sablik, 2020. "Asset Bubbles and Global Imbalances," Richmond Fed Economic Brief, Federal Reserve Bank of Richmond, vol. 20, pages 1-4, January.
    12. Julia, Knolle, 2014. "An Empirical Comparison of Interest and Growth Rates," MPRA Paper 59520, University Library of Munich, Germany.
    13. Lukasz Rachel & Thomas Smith, 2015. "Secular Drivers of the Global Real Interest Rate," Discussion Papers 1605, Centre for Macroeconomics (CFM).
    14. Zhengyang Jiang & Hanno Lustig & Stijn Van Nieuwerburgh & Mindy Z. Xiaolan, 2024. "The U.S. Public Debt Valuation Puzzle," Econometrica, Econometric Society, vol. 92(4), pages 1309-1347, July.
    15. Marko Köthenbürger & Panu Poutvaara, 2002. "Social Security Reform and Intergenerational Trade: Is there Scope for a Pareto-Improvement?," CESifo Working Paper Series 795, CESifo.
    16. Leland Farmer & Roger Farmer, 2022. "Zoomers and Boomers: Asset Prices and Intergenerational Inequality," NBER Working Papers 30419, National Bureau of Economic Research, Inc.
    17. Gilles Le Garrec & Vincent Touzé, 2015. "Stagnation séculaire et accumulation de capital," Revue de l'OFCE, Presses de Sciences-Po, vol. 0(6), pages 307-337.
    18. repec:hal:spmain:info:hdl:2441/69n0a0mntc92to9jgrhc3ppj6u is not listed on IDEAS
    19. Marko Köthenbürger & Panu Poutvaara, 2006. "Social Security Reform and Investment in Education: Is There Scope for a Pareto Improvement?," Economica, London School of Economics and Political Science, vol. 73(290), pages 299-319, May.
    20. Marco Bassetto & Thomas J. Sargent, 2020. "Shotgun Wedding: Fiscal and Monetary Policy," Annual Review of Economics, Annual Reviews, vol. 12(1), pages 659-690, August.
    21. Markus K. Brunnermeier & Sebastian, Sannikov, Yuliy Merkel & Sebastian Merkel, 2021. "Debt as Safe Asset," CESifo Working Paper Series 9500, CESifo.

    More about this item

    Keywords

    Dynamic inefficiency; fiscal policy; public debt; overlapping-generations models with land; transaction costs; pay-as-you-go retirement provision;
    All these keywords.

    JEL classification:

    • D15 - Microeconomics - - Household Behavior - - - Intertemporal Household Choice; Life Cycle Models and Saving
    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bpj:germec:v:23:y:2022:i:1:p:21-60:n:2. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Peter Golla (email available below). General contact details of provider: https://www.degruyter.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.