Public Debt Places No Burden on Future Generations under Demand Shortage
Faculty of Economics, Osaka University of Economics
Osaka University - Institute of Social and Economic Research (ISER)
September 22, 2010
ISER Discussion Paper No. 791
In a Diamond-type overlapping-generations setting public debt issuance places no burden on future generations including those who repay the debt if prices and wages are ﬁxed and unemployment occurs in the periods in which public bonds are issued and repaid. Whether the collected fund is spent on government purchases or transfers to the present generation, public bond issuance stimulates aggregate demand and creates additional employment of future generations, which yields additional income that is large enough to cover their tax burden. This property is true whether the debt is repaid by children or grandchildren.
Number of Pages in PDF File: 26
Keywords: Demand shortage, Overlapping generations, Public debt, Unemployment, Welfare eﬀects
JEL Classification: E24, E62, H63working papers series
Date posted: September 27, 2010 ; Last revised: September 28, 2010
© 2013 Social Science Electronic Publishing, Inc. All Rights Reserved.
This page was processed by apollo7 in 0.344 seconds