Public Debt Places No Burden on Future Generations under Demand Shortage

26 Pages Posted: 27 Sep 2010 Last revised: 28 Sep 2010

See all articles by Takayuki Ogawa

Takayuki Ogawa

Faculty of Economics, Osaka University of Economics

Yoshiyasu Ono

Osaka University - Institute of Social and Economic Research (ISER)

Date Written: September 22, 2010

Abstract

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.

Keywords: Demand shortage, Overlapping generations, Public debt, Unemployment, Welfare effects

JEL Classification: E24, E62, H63

Suggested Citation

Ogawa, Takayuki and Ono, Yoshiyasu, Public Debt Places No Burden on Future Generations under Demand Shortage (September 22, 2010). ISER Discussion Paper No. 791. Available at SSRN: https://ssrn.com/abstract=1680693 or http://dx.doi.org/10.2139/ssrn.1680693

Takayuki Ogawa (Contact Author)

Faculty of Economics, Osaka University of Economics ( email )

2-2-8 Osumi
Higashiyokogawa-ku
Osaka
Japan

Yoshiyasu Ono

Osaka University - Institute of Social and Economic Research (ISER) ( email )

6-1 Mihogaoka
Ibaraki, Osaka 567-0047
Japan

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