Working Paper: NBER ID: w1083
Authors: Torsten Persson
Abstract: This paper deals with public debt in open economies, extending Diamond's overlapping generations model to deal with a small openeconor as well as an international eciuilibrium of two large economies. It focuses on the intergenerational welfare redistributions caused by an increase in the public debt triggered by a period of government budget deficit, and shows that these effects are markedly different in open and closed economies. The interplay between the deficits in the government budget and the current account is also analyzed. Here, it is shown how a single period with a deficit in the government budget can be followed by a seciuence of periods with a deficit in the current account.
Keywords: public debt; intergenerational welfare; open economies; government deficits
JEL Codes: H63; E62
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| government deficits (H62) | public debt (H63) |
| public debt (H63) | higher taxes for future generations (H60) |
| public debt (H63) | interest rates (E43) |
| interest rates (E43) | capital-labor ratio (J24) |
| capital-labor ratio (J24) | wages (J31) |
| increase in public debt (H69) | current generation welfare (I38) |
| public debt (H63) | decline in welfare for all generations (I38) |