The Optimal Structure for Public Debt
We study risk-sharing through public debt in a two-generations-overlapping model. If bonds and wage-indexed social security service a given initial obligation, there exists a set of Pareto-efficient debt structures. This set is characterized by conflicting interests of current and yet unborn cohorts over the factor-price risk allocation. If both size and composition of the debt are choice variables, these conflicting interests can be reconciled. Changes in the debt's composition reallocate factor-price risks, while changes in its size reallocate resources. This separation of risk-sharing and crowding-out narrows the set of efficient debt structures until only one remains.
Year of publication: |
2014
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Authors: | Kuhle, Wolfgang |
Published in: |
Metroeconomica. - Wiley Blackwell, ISSN 0026-1386. - Vol. 65.2014, 2, p. 321-348
|
Publisher: |
Wiley Blackwell |
Saved in:
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