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每週研討會

The Determination of Public Debt under both Aggregate and Idiosyncratic Uncertainties

  • 日期 2019-11-05 (週二)
  • 時間 02:30 PM
  • 地點 Conference Room B110
  • 主持人 Professor Cheng-Chen Yang
  • 演講者 Dr. Yi-Li Chien (簡怡立)
  • 演講者簡介 Dr. Chien received his Ph.D. in Economics at University of California, Los Angeles in 2006. He is currently a Senior Economist at Federal Reserve Bank of St. Louis. His research interests are Macroeconomics, Household Finance and Asset Pricing, Asymmetric Information and Dynamic Contracting.
  • 摘要 We analyze the Ramsey planner’s decisions to finance stochastic public expenditures under incomplete insurance markets for idiosyncratic risk. We show that whenever the market interest rate lies below the time discount rate, the Ramsey planner has a dominating incentive to increase debt to meet the private sector’s demand for full self-insurance, regardless of the relative size of aggregate shocks. However, if the full self-insurance Ramsey allocation is impossible to achieve (in the absence of government debt limits), an interior or bounded Ramsey equilibrium may not exist. The strong incentives for the Ramsey planner to smooth both individual consumption and income taxes imply that (i) when state-contingent bonds are available, the Ramsey equilibrium is characterized by full self-insurance and constant taxes in the long run, unless an upper government debt limit binds; and (ii) when state-contingent debt is not available, the government’s attempt to balance the competing incentives between tax smoothing and consumption smoothing—even at the cost of extra tax distortion—implies not only a bounded stochastic unit root component in optimal taxes but also a sufficiently high level of public debt such that the probability of staying at the full self-insurance allocation is strictly positive (unless a government borrowing limit exists and is binding). Therefore, adding a liquidity premium into the value of government bonds via incomplete financial markets can bring the theory of public finance into closer conformity with realty.
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