Book contents
- Frontmatter
- Contents
- List of figures
- List of tables
- Preface
- List of conference participants
- 1 Introduction
- 2 The efficient design of public debt
- Discussion
- 3 Indexation and maturity of government bonds: an exploratory model
- 4 Public confidence and debt management: a model and a case study of Italy
- 5 Confidence crises and public debt management
- 6 Funding crises in the aftermath of World War I
- 7 The capital levy in theory and practice
- 8 Episodes in the public debt history of the United States
- 9 The Italian national debt conversion of 1906
- 10 Fear of deficit financing – is it rational?
- 11 Government domestic debt and the risk of default: a political–economic model of the strategic role of debt
- Index
Discussion
Published online by Cambridge University Press: 05 July 2011
- Frontmatter
- Contents
- List of figures
- List of tables
- Preface
- List of conference participants
- 1 Introduction
- 2 The efficient design of public debt
- Discussion
- 3 Indexation and maturity of government bonds: an exploratory model
- 4 Public confidence and debt management: a model and a case study of Italy
- 5 Confidence crises and public debt management
- 6 Funding crises in the aftermath of World War I
- 7 The capital levy in theory and practice
- 8 Episodes in the public debt history of the United States
- 9 The Italian national debt conversion of 1906
- 10 Fear of deficit financing – is it rational?
- 11 Government domestic debt and the risk of default: a political–economic model of the strategic role of debt
- Index
Summary
The paper by Douglas Gale is an important contribution to the analysis of the role of public debt in affecting intertemporal allocations. To my taste, the most interesting part is without question that which deals with the role of debt in overlapping generation models. I shall concentrate my comments on that part.
We are used to thinking of the role of government debt in the context of models with certainty. In such models, the crucial issue is that of capital accumulation. Individual utility maximization may still lead to overaccumulation of capital, in which case issuing debt and reducing capital accumulation is Pareto-improving. The source of the welfare failure is that those currently alive do not hold claims to all future resources, and the crucial criterion is, assuming growth to be zero, whether the net rate of return on capital is negative (this is a loose characterization, the exact one being given by the Cass criterion). If it is negative, issuing some debt is Pareto-improving. Otherwise, it is not.
Under uncertainty, a different aspect of overlapping generation models comes into play, namely the incompleteness of markets. Finite lives imply that intergenerational insurance is limited, opening a second and conceptually distinct role for debt policy and government intergenerational transfers. Despite a number of papers on the subject, we know much less about the positive and normative effects of debt in that context. This is where Gale makes substantial advances.
- Type
- Chapter
- Information
- Public Debt ManagementTheory and History, pp. 47 - 51Publisher: Cambridge University PressPrint publication year: 1990