Home About Latest Browse RSS Advanced Search

Federal Reserve Bank of Minneapolis
Quarterly Review
On the needed quantity of government debt
Kathryn Birkeland
Edward C. Prescott
Abstract

People are enjoying longer retirement periods, and population growth is slowing and, in some countries, falling. In this article, we determine the implications of these demographic changes for the needed amount of government debt. If tax rates and the transfer share of gross national income (GNI) are both high, the needed debt is near zero. With such a system, however, huge deadweight losses are incurred as a result of the high tax rate on labor income. With a savings system, a large government debt to annual GNI ratio is needed. In a country with early retirement and no population growth, the needed government debt is as large as five times GNI, and welfare is as much as 24 percent higher in terms of lifetime consumption equivalents in the savings system relative to the tax-and-transfer system.


Download Full text
Download Full text
Cite this item
Kathryn Birkeland & Edward C. Prescott, "On the needed quantity of government debt" , Federal Reserve Bank of Minneapolis, Quarterly Review, issue Nov, pages 2-15, 2007.
More from this series
JEL Classification:
Subject headings:
Keywords: Debt
For corrections, contact Jannelle Ruswick ()
Fed-in-Print is the central catalog of publications within the Federal Reserve System. It is managed and hosted by the Economic Research Division, Federal Reserve Bank of St. Louis.

Privacy Legal