[go: up one dir, main page]
IDEAS home Printed from https://ideas.repec.org/p/red/sed009/109.html
   My bibliography  Save this paper

Optimal Debt Management and Redistribution

Author

Listed:
  • Pierre Yared

    (Columbia University)

Abstract
This paper develops a theory of debt management in which government financing decisions have distributional consequences. We consider a constant aggregate endowment economy in which the government finances exogenous stochastic public spending needs with uniform lump sum taxes and state-contingent public debt. Households are heterogeneous with respect to their constant endowment and their access to private credit. Ricardian Equivalence holds if public debt is high but not if it is low since some households are borrowing constrained and public debt is traded at a premium. For low levels of debt, tax as opposed to debt financing raises current inequality but reduces future inequality since returns to savers decline. We show that optimal policy exploits this tradeoff by limiting the supply of public debt. Consequently, policies and allocations respond persistently to spending shocks along the equilibrium path even though debt markets are complete and taxes are lump sum. This is because households respond to government policy by saving into the future to protect themselves against borrowing constraints. Nonetheless, in the long run, borrowing constrained households accumulate enough wealth that allocations do not respond persistently to spending shocks and Ricardian Equivalence holds.

Suggested Citation

  • Pierre Yared, 2009. "Optimal Debt Management and Redistribution," 2009 Meeting Papers 109, Society for Economic Dynamics.
    • Handle: RePEc:red:sed009:109
    as

    Download full text from publisher

    To our knowledge, this item is not available for download. To find whether it is available, there are three options:
    1. Check below whether another version of this item is available online.
    2. Check on the provider's web page whether it is in fact available.
    3. Perform a search for a similarly titled item that would be available.

    More about this item

    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:red:sed009:109. 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.

    We have no bibliographic references for this item. You can help adding them by using 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: Christian Zimmermann (email available below). General contact details of provider: https://edirc.repec.org/data/sedddea.html .

    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.