|
Abstract:
|
In overlapping-generations economies with perfect financial markets and lumpsum
taxation, restrictions on the government budget deficits do not limit the
set of achievable allocations. For economies in which tax instruments are distortionary
and limited in number, deficits are irrelevant only in the unrealistic
case in which the number of tax instruments is large relative to the number
of policy goals. In particular, if the government can use only anonymous consumption
taxes, then achieving the prescribed deficits without changing the
equilibrium allocation will typically be impossible when the number of consumers
exceeds the number of commodities. A similar result holds if consumer
credit is (exogenously) restricted. Surprisingly, in this case, distortionary taxes
may be more likely than lump-sum taxes to lead to the irrelevance of government
deficits. Journal of Economic Literature Classification Numbers: D51,
D91, E32.
Keywords: Balanced Budget, Balanced-Budget Amendment, Burden of the Public Debt,
Comparative Statics, Consumption Taxes, Credit Restrictions, Distortionary Taxes, Economic
Policy, Government Budget Deficit, Maastricht Treaty, Optimal Taxation, Overlapping
Generations. |
This work is licensed under a Creative Commons License.
