Public debt and aggregate risk

Audrey Desbonnet () and Sumudu Kankanamge

No 16-658, TSE Working Papers from Toulouse School of Economics (TSE)

Abstract: In this paper, we investigate the importance of aggregate fluctuations for the assessment of the optimal level of public debt in an incomplete markets economy. We start by building a steady state model in which households are only subject to uninsurable idiosyncratic risk and evaluate the optimal level of public debt. We then augment the model to allow for aggregate risk and measure the impact on the optimal level. We show that the cyclical behavior of the economy has a quantitative impact on this level that can be decomposed into the effects of the aggregate productivity shock and the cyclicality of unemployment. Moreover, we find that matching wealth distribution statistics substantially changes the optimal level of public debt.

Keywords: public debt; aggregate risk; precautionary saving; credit constraints (search for similar items in EconPapers)
JEL-codes: E32 E60 H30 H60 (search for similar items in EconPapers)
Date: 2016-05
New Economics Papers: this item is included in nep-dge, nep-mac, nep-pbe and nep-pub
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Related works:
Journal Article: PUBLIC DEBT AND AGGREGATE RISK (2017)
Working Paper: Public debt and aggregate risk (2008)
Working Paper: Public debt and aggregate risk (2008)
Working Paper: Public debt and aggregate risk (2007)
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Persistent link: https://EconPapers.repec.org/RePEc:tse:wpaper:30492

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