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Dynamic Efficiency, the Riskless Rate, and Debt Ponzi Games under Uncertainty

Dynamic Efficiency, the Riskless Rate, and Debt Ponzi Games under Uncertainty In a dynamically efficient economy, can a government roll its debt forever and avoid the need to raise taxes? In a series of examples of economies with zero growth, this paper shows that such Ponzi games may be infeasible even when the average rate of return on bonds is negative, and may be feasible even when the average rate of return on bonds is positive. The paper then reveals the structure which underlies these examples. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png The B.E. Journal of Macroeconomics de Gruyter

Dynamic Efficiency, the Riskless Rate, and Debt Ponzi Games under Uncertainty

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Publisher
de Gruyter
Copyright
©2011 Walter de Gruyter GmbH & Co. KG, Berlin/Boston
ISSN
1935-1690
eISSN
1935-1690
DOI
10.2202/1534-6013.1031
Publisher site
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Abstract

In a dynamically efficient economy, can a government roll its debt forever and avoid the need to raise taxes? In a series of examples of economies with zero growth, this paper shows that such Ponzi games may be infeasible even when the average rate of return on bonds is negative, and may be feasible even when the average rate of return on bonds is positive. The paper then reveals the structure which underlies these examples.

Journal

The B.E. Journal of Macroeconomics – de Gruyter

Published: Nov 29, 2001

Keywords: dynamic efficiency; riskless rate; ponzi games

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