Dynamic Efficiency, the Rickless Rate and Debt

Download or read book Dynamic Efficiency, the Rickless Rate and Debt written by Olivier J. Blanchard and published by . This book was released on 2001 with total page 21 pages. Available in PDF, EPUB and Kindle. Book excerpt: In a dynamically efficienct economy, can a government roll its debt forever and avoid the need to raise taxes? In a series of examples of production economies with zero growth, this paper shows that such Ponzi games may be infeasible even when the average rate of return on bonds is negative, and may be feasible even when the average rate of return on bonds is positive. The paper then reveals the structure which underlies these examples. Keywords: Dynamic efficiency, pareto optimality, bubbles, Ponzi games, public debt, riskless rate.