Working Paper: CEPR ID: DP17397
Authors: Rishabh Aggarwal; Adrien Auclert; Matthew Rognlie; Ludwig Straub
Abstract: We study the effects of debt-financed fiscal transfers in a general equilibrium, heterogeneous-agent model of the world economy. In the long run, increases in government debt anywhere raise the world interest rate and increase private wealth everywhere. In the short run, a country with a larger-than-average fiscal deficit experiences both a large increase in private savings (“excess savings”) and a small but persistent current account deficit (a slow-motion “twin deficit”). These patterns are consistent with the evolution of the world’s balance of payments since the beginning of the Covid pandemic.
Keywords: Distribution
JEL Codes: E62; F32; F41
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| government debt (H63) | world interest rate (E43) |
| government debt (H63) | private wealth (D14) |
| fiscal deficit (H68) | private savings (D14) |
| fiscal deficit (H68) | current account deficit (F32) |
| fiscal deficit (H68) | excess savings (E21) |
| excess savings (E21) | current account deficit (F32) |