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on Dynamic General Equilibrium |
| By: | Partha Sen (Delhi School of Economics) |
| Abstract: | We analyse debt policy in a two-period, two-sector overlapping generations model with Leontief technologies. We find that debt, issued to transfer resources to the initially old, could be welfare improving in the new steady state for an economy which satisfies the usual conditions for dynamic efficiency viz. the rate of interest is at least as great as the population growth rate. Out of steady state, the only potential losers are the recipients of the transfer. This could happen if the interest rate were to fall sufficiently to offset the effect of the transfer. From generation one onwards everyone becomes better off (under reasonable asumptions). Contrast this with a one-sector model where the definite gainers are those who are alive on date one. |
| Keywords: | Government Debt, Overlapping Generations,Two-Sector Models,Dynamic Efficiency. |
| JEL: | E2 E6 |
| Date: | 2005–07 |
| URL: | http://d.repec.org/n?u=RePEc:cde:cdewps:137&r=dge |
| By: | Emily T. Cremers (National University of Singapore); Partha Sen (Delhi School of Economics) |
| Abstract: | This paper explores the steady state welfare implications of permanent transfers in a two-country, two-sector overlapping generations model. At the golden rule and with Walrasian stability, we demonstrate that the change in the (static) terms of trade always works in favor of a transfer paradox. The conditions under which the transfer paradox is obtained are independent of factor intensity rankings and also whether the donor or recipient has the higher savings propensity. In contrast, conditions under which a change in the intertemporal terms of trade delivers a Pareto-improving transfer depend upon both of the above and also on the initial position of the world capital-labor ratio relative to the golden rule. |
| Keywords: | Transfer paradox, Pareto-improving transfers, two-sector overlapping generations model |
| JEL: | F11 F35 F43 O19 O41 |
| Date: | 2005–08 |
| URL: | http://d.repec.org/n?u=RePEc:cde:cdewps:138&r=dge |