Deficit financing in overlapping generation economies with habit persistence

In this paper, we study how deficit financing is affected by the introduction of habit formation in an otherwise standard Gale (JET, 1973) economy in which the government is a net lender and young agents are borrowing rather than saving. We find that the amount of deficit the government is able to float into the economy is lower when habits are present. This finding is due to the fact that habit persistence puts a cap on borrowing.

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Year of publication:	2006-10-30
Authors:	Bossi, Luca ; Gomis-Porqueras, Pere
Published in:	Economics Bulletin. - AccessEcon, ISSN 1545-2921. - Vol. 5.2006, 17, p. 1-4
Publisher:	AccessEcon
Subject:	Deficit Financing

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Extent:	application/pdf
Type of publication:	Article
Classification:	E6 - Macroeconomic Policy Formation, Macroeconomic Aspects of Public Finance, Macroeconomic Policy, and General Outlook ; E0 - Macroeconomics and Monetary Economics. General
Source:	RePEc - Research Papers in Economics

Persistent link: https://www.econbiz.de/10010835859