Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
5098360 | Journal of Economic Dynamics and Control | 2015 | 35 Pages |
Abstract
The U.S. faces exponentially rising entitlement obligations. I introduce a fiscal limit-a point where higher taxes are no longer a feasible financing mechanism-into a Perpetual Youth model to examine how intergenerational redistributions of wealth, the average duration of government debt, and entitlement reform impact the consequences of explosive government transfers. Three key findings emerge: (1) Growing government transfers cause more severe and more persistent stagflation than in representative agent models that do not capture intergenerational transfers of wealth; (2) A longer average duration of government debt pushes the financing of government liabilities into the future and reduces the short-run impacts of explosive transfers; (3) The time it takes the economy to rebound from a period of growing transfers increases exponentially with the number of years it takes to pass entitlement reform.
Related Topics
Physical Sciences and Engineering
Mathematics
Control and Optimization
Authors
Alexander W. Richter,