Ricardo Reis: The constraint on public debt when r < g but g < m
Please note: For week 8 only, Seminar in Macroeconomics will be held in the Lecture Theatre
With real interest rates below the growth rate of the economy, but the marginal product of capital above it, the public debt can be lower than the present value of primary surpluses because of a bubble premia on the debt. The government can run a deficit forever. In a model that endogenizes the bubble premium as arising from the safety nd liquidity of public debt, more government spending requires a larger bubble premium, but because people want to hold less debt, there is an upper limit on spending. Inflation reduces the fiscal space, financial repression increases it, and redistribution of wealth or income taxation have an unconventional effect on fiscal capacity through the bubble premium.
Date: 30 November 2021, 16:00 (Tuesday, 8th week, Michaelmas 2021)
Venue: Manor Road Building, Manor Road OX1 3UQ
Venue Details: Lecture Theatre or https://zoom.us/j/93987778529?pwd=czZQUFh6aTVLNk9QQjd6RnNxNmtpQT09
Speaker: Ricardo Reis (London School of Economics)
Organising department: Department of Economics
Part of: Macroeconomics Seminar
Booking required?: Not required
Audience: Members of the University only
Editor: Emma Heritage