S-WoPEc
 
Scandinavian Working Papers in Economics
HomeAboutSeriesSubject/JEL codesAdvanced Search
The Economic Research Institute, Stockholm School of Economics SSE/EFI Working Paper Series in Economics and Finance

No 75:
Budget Deficits, Stochastic Population Size and Consumption

Torbjörn Becker

Abstract: This paper analyzes the effects on present consumption of budget deficits under different assumptions regarding demographics. In the first part, birth and death rates are deterministic, and in the second part, birth rates are assumed to be stochastic. In the case of a deterministic population size, an increase in public debt raises present consumption, if the (deterministic) birth rate is greater than zero, while with a zero birth rate we obtain debt neutrality. This is consistent with the results in Blanchard [1985] and Buiter [1988]. However, for the case of stochastic birth rates, it is shown that we can obtain the result that present consumption will decrease when public debt is increased, both when we have a zero expected birth rate, and when the expected population size is assumed to be constant, so that the expected birth rate is positive and equal to the death rate. The explanation is that with an uncertain birth rate, the future tax base is uncertain, which makes per capita taxes uncertain in the future. Shifting taxes to the future thus implies greater uncertainty about future net income, and induces precautionary savings.

Keywords: Tax base uncertainty; Ricardian equivalence; precautionary savings; demographics; (follow links to similar papers)

JEL-Codes: D81; E21; H60; J10; (follow links to similar papers)

26 pages, October 1995

Before downloading any of the electronic versions below you should read our statement on copyright.
Download GhostScript for viewing Postscript files and the Acrobat Reader for viewing and printing pdf files.

Full text versions of the paper:

hastef0075.ps    PostScript file (1.02MB) 
hastef0075.ps.zip    PKZipped PostScript (262kB) 
hastef0075.pdf    PDF-file (151kB) 
hastef0075.pdf.zip    PDF-file (zipped) (130kB) 
Download Statistics

Questions (including download problems) about the papers in this series should be directed to Helena Lundin ()
Report other problems with accessing this service to Sune Karlsson () or Helena Lundin ().

Programing by
Design by Joachim Ekebom

Handle: RePEc:hhs:hastef:0075 This page was generated on 2014-12-14 19:22:49