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Contribution Details

Type Working Paper
Scope Discipline-based scholarship
Title When interest rates go low, should public debt go high?
Organization Unit
Authors
  • Johannes Brumm
  • Xiangyu Feng
  • Laurence J Kotlikoff
  • Felix Kübler
Language
  • English
Institution National Bureau of Economic Research (NBER)
Series Name NBER Working Paper Series
Number 28951
Number of Pages 40
Date 2023
Abstract Text Is deficit finance, explicit or implicit, free when borrowing rates are routinely lower than growth rates? Specifically, can the government make all generations better off by perpetually taking from the young and giving to the old? We study this question in simple closed and open economies and show that achieving Pareto gains requires implausible calibrations. Even then, the gains reflect, depending on the economy's openness, improved intergenerational risk-sharing, improved international risk-sharing, and beggaring thy neighbor – not intergenerational redistribution per se. Low government borrowing rates, including borrowing rates running far below growth rates, justify improved risk-sharing between generations and countries. They provide no convincing basis for using deficit finance to redistribute from young and future generations or other countries.
Official URL https://www.nber.org/papers/w28951
Digital Object Identifier 10.3386/w28951
Other Identification Number merlin-id:21771
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