Public debt in economies with heterogeneous agents

Anmol Bhandari, David Evans, Mikhail Golosov, Thomas Sargent

    Research output: Contribution to journalArticle

    Abstract

    We study public debt in competitive equilibria in which a government chooses transfers and taxes optimally and in addition decides how thoroughly to enforce debt contracts. If the government enforces perfectly, asset inequality is determined in an optimum competitive equilibrium but the level of government debt is not. Welfare increases if private debt contracts are not enforced. Borrowing frictions let the government gather monopoly rents that come from issuing public debt without facing competing private borrowers. Regardless of whether the government chooses to enforce private debt contracts, the level of initial government debt does not affect an optimal allocation.

    Original languageEnglish (US)
    JournalJournal of Monetary Economics
    DOIs
    StateAccepted/In press - 2017

    Fingerprint

    Heterogeneous agents
    Government
    Public debt
    Debt contracts
    Government debt
    Competitive equilibrium
    Private debt
    Monopoly
    Borrowing
    Rent
    Tax
    Assets
    Friction
    Optimal allocation

    Keywords

    • Distorting tax
    • Government debt
    • Ricardian equivalence
    • Transfers

    ASJC Scopus subject areas

    • Finance
    • Economics and Econometrics

    Cite this

    Public debt in economies with heterogeneous agents. / Bhandari, Anmol; Evans, David; Golosov, Mikhail; Sargent, Thomas.

    In: Journal of Monetary Economics, 2017.

    Research output: Contribution to journalArticle

    Bhandari, Anmol ; Evans, David ; Golosov, Mikhail ; Sargent, Thomas. / Public debt in economies with heterogeneous agents. In: Journal of Monetary Economics. 2017.
    @article{ba754f4a60c34777bf312f94b285e7fa,
    title = "Public debt in economies with heterogeneous agents",
    abstract = "We study public debt in competitive equilibria in which a government chooses transfers and taxes optimally and in addition decides how thoroughly to enforce debt contracts. If the government enforces perfectly, asset inequality is determined in an optimum competitive equilibrium but the level of government debt is not. Welfare increases if private debt contracts are not enforced. Borrowing frictions let the government gather monopoly rents that come from issuing public debt without facing competing private borrowers. Regardless of whether the government chooses to enforce private debt contracts, the level of initial government debt does not affect an optimal allocation.",
    keywords = "Distorting tax, Government debt, Ricardian equivalence, Transfers",
    author = "Anmol Bhandari and David Evans and Mikhail Golosov and Thomas Sargent",
    year = "2017",
    doi = "10.1016/j.jmoneco.2017.09.007",
    language = "English (US)",
    journal = "Journal of Monetary Economics",
    issn = "0304-3932",
    publisher = "Elsevier",

    }

    TY - JOUR

    T1 - Public debt in economies with heterogeneous agents

    AU - Bhandari, Anmol

    AU - Evans, David

    AU - Golosov, Mikhail

    AU - Sargent, Thomas

    PY - 2017

    Y1 - 2017

    N2 - We study public debt in competitive equilibria in which a government chooses transfers and taxes optimally and in addition decides how thoroughly to enforce debt contracts. If the government enforces perfectly, asset inequality is determined in an optimum competitive equilibrium but the level of government debt is not. Welfare increases if private debt contracts are not enforced. Borrowing frictions let the government gather monopoly rents that come from issuing public debt without facing competing private borrowers. Regardless of whether the government chooses to enforce private debt contracts, the level of initial government debt does not affect an optimal allocation.

    AB - We study public debt in competitive equilibria in which a government chooses transfers and taxes optimally and in addition decides how thoroughly to enforce debt contracts. If the government enforces perfectly, asset inequality is determined in an optimum competitive equilibrium but the level of government debt is not. Welfare increases if private debt contracts are not enforced. Borrowing frictions let the government gather monopoly rents that come from issuing public debt without facing competing private borrowers. Regardless of whether the government chooses to enforce private debt contracts, the level of initial government debt does not affect an optimal allocation.

    KW - Distorting tax

    KW - Government debt

    KW - Ricardian equivalence

    KW - Transfers

    UR - http://www.scopus.com/inward/record.url?scp=85030758410&partnerID=8YFLogxK

    UR - http://www.scopus.com/inward/citedby.url?scp=85030758410&partnerID=8YFLogxK

    U2 - 10.1016/j.jmoneco.2017.09.007

    DO - 10.1016/j.jmoneco.2017.09.007

    M3 - Article

    JO - Journal of Monetary Economics

    JF - Journal of Monetary Economics

    SN - 0304-3932

    ER -