نقش بدهی های عمومی در مدل نسل های دارای اشتراک با عرضه نیروی کار داخلی

This paper argues that some propositions reported in a recent paper by [Fanti., L., Spataro, L., 2006. Endogenous labor supply in Diamond’s (1965) OLG model: A reconsideration of the debt role. Journal of Macroeconomics 28, 28–438] are not warranted. They claim that including an endogenous labor supply in an overlapping generations model may change the conclusions concerning the capital accumulation and welfare effects of (internal) public debt issue. We show that their results are not the consequence of the Cobb–Douglas preferences they posit, but of a rather incomplete development of their model. When this incompleteness is corrected, and under general assumptions on preferences and technology, the propositions arrived at originally by [Diamond, P.A., 1965. National debt in a neoclassical growth model. American Economic Review 55, 1126–1150] in a model that does not take the labor–leisure decision into account continue to hold. In particular, no matter whether the starting point is a dynamically efficient or inefficient steady state, an increase in the stock of public debt per taxpayer unambiguously depresses the capital–labor ratio and raises the interest rate. Moreover, the welfare level will increase (decrease) when the starting point is a dynamically inefficient (efficient) steady state.

Ever since the celebrated paper by Diamond (1965) the overlapping generations (OLG) model has become a standard tool to deal with both macroeconomic and public finance issues. In a recent contribution to this Journal, Fanti and Spataro (2006) (F–S henceforth) introduce an endogenous labor supply in Diamond’s (1965) model and reconsider the role of public debt. This is an important extension, since the standard approach focuses on savings decisions and neglects labor–leisure decisions. In particular, F–S posit Cobb–Douglas preferences and discuss the consequences of the government issuing internal public debt on steady state capital accumulation and welfare when taxes (subsidies) fall on (are received by) the younger generation. They claim to have shown that when the starting point is a dynamically inefficient steady state (i.e., a situation where the interest rate falls short of the population growth rate), the relationship between public debt issue and the steady-state levels of the interest rate and welfare is ambiguous: it may even be the case that an increase in debt is welfare worsening. These results are thus different from those arising from Diamond’s (1965) setting. The purpose of this paper is to show that F–S’s claims are not warranted since they are the consequence of a rather incomplete development of their model. When this incompleteness is corrected, and under general conditions (i.e., without restricting the analysis to Cobb–Douglas preferences), it is shown that the introduction of an elastic labor supply does not change the propositions arrived at by Diamond (1965) in his OLG model without a labor–leisure decision. In particular, no matter whether the starting point is a dynamically efficient or inefficient steady state, an increase in the stock of public debt per taxpayer unambiguously depresses the capital–labor ratio and raises the interest rate. The welfare level will increase when the starting point is a dynamically inefficient steady state and will decrease when the economy’s capital–labor ratio is below its golden rule level.

This paper has argued that some propositions reported in a recent paper by Fanti and Spataro (2006) published in this Journal are not warranted. They claim that including an endogenous labor supply in an OLG model à la Diamond (1965) may change the conclusions concerning the capital accumulation and welfare effects of internal public debt issue. We have shown that their results are not the consequence of the rather stringent Cobb–Douglas preferences they posit, but of an incomplete development of their model. When this incompleteness is corrected, and under general assumptions on preferences and technology, the results arrived at originally by Diamond (1965) in a model that does not take the labor–leisure decision into account continue to hold. In particular, no matter whether the starting point is a dynamically efficient or inefficient steady state, an increase in the stock of public debt per taxpayer unambiguously depresses the capital–labor ratio and raises the interest rate. Moreover, the welfare level will increase (decrease) when the starting point is a dynamically inefficient (efficient) steady state.