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SUSTAINABILITY OF PUBLIC DEBT AND INEQUALITY IN A GENERAL EQUILIBRIUM MODEL

Published online by Cambridge University Press:  04 June 2019

Noritaka Maebayashi  and
Kunihiko Konishi
Noritaka Maebayashi*
Affiliation:
The University of Kitakyushu
Kunihiko Konishi
Affiliation:
Matsuyama University
*
Address correspondence to: Noritaka Maebayashi, Faculty of Economics and Business Administration, The University of Kitakyushu 4-2-1 Kitagata, Kokura Minami-ku, Kitakyushu 802-8577, Japan. e-mails: [email protected]; [email protected]
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Abstract

This study investigates the relationship between the sustainability of public debt and inequality in an endogenous growth model with heterogeneous agents. We show that the threshold for the sustainability of public debt is related to not only the relative size of public debt but also inequality. In addition, this study examines the effects of budget deficit and redistributive policies on the sustainability of public debt and inequality. We show that an increase in the deficit ratio or the redistributive tax makes public debt less sustainable. If the economy falls into the unsustainable region as a result of the policy change, both public debt and inequality continue to increase.

Keywords

Fiscal SustainabilityPublic DebtInequalityRedistributive Policy
Type
Articles
Information
Macroeconomic Dynamics , Volume 25 , Issue 4 , June 2021 , pp. 874 - 895
Copyright
© Cambridge University Press 2019

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Footnotes

We would like to express our sincere gratitude to the associate editor and two anonymous referees for their constructive comments and suggestions. We thank the seminar participants at the Asian Growth Research Institute, Kyushu University, Hiroshima University, Nagoya Gakuin University, Otaru University of Commerce, Tokai University, and the 2017 International Conference on Public Economic Theory (PET 2017) for their comments. This work was partly supported by the Grant-in-Aid for Young Scientists (grant number 17K18032) and the Research Fellowship for Young Scientists (grant number 16J09472) from the Japanese Ministry of Education, Culture, Sports, and Technology. Any errors are our responsibility.

References

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