Rankin, Neil and Roffia, Barbara (1999) Maximum sustainable government debt in the overlapping generations model. Working Paper. Coventry: University of Warwick, Department of Economics. Warwick economic research papers (No.521).

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Abstract

The theoretical determinants of maximum sustainable government debt are investigated using Diamond’s overlapping-generations model. A level of debt is defined to be ‘sustainable’ if a steady state with non-degenerate values of economic variables exists. We show that a maximum sustainable level of debt almost always exists. Most interestingly, it normally occurs at a ‘catastrophe’ rather than a ‘degeneracy’, i.e. where variables such as capital and consumption are in the interiors, rather than at the limits, of their economically meaningful ranges. This means that if debt is increased step by step, the economy may suddenly collapse without obvious warning.

Item Type:	Working or Discussion Paper (Working Paper)
Subjects:	H Social Sciences > HJ Public Finance
Divisions:	Faculty of Social Sciences > Economics
Library of Congress Subject Headings (LCSH):	Debts, Public, Intergenerational relations, Distributive justice, Catastrophes (Mathematics)
Series Name:	Warwick economic research papers
Publisher:	University of Warwick, Department of Economics
Place of Publication:	Coventry
Official Date:	January 1999
Dates:	Date Event January 1999 Published
Number:	No.521
Number of Pages:	29
Institution:	University of Warwick
Status:	Not Peer Reviewed
Access rights to Published version:	Open Access (Creative Commons)

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