The age-specific burdens of short-run fluctuations in government spending

Abstract

We study the impact of government spending shocks on the distribution of income and wealth between cohorts and the associated welfare effects in a dynamic stochastic overlapping generations model with two types of households, Ricardian households and rule-of-thumb consumers. We demonstrate that an unexpected increase in government spending decreases income and wealth inequality. In contrast to the conventional wisdom that the financing of government expenditures by debt rather than taxes especially burdens young generations, we find that debt-financing also harms Ricardian households during retirement. The crucial element in our analysis is a wealth effect that results from the decline in the price of capital due to higher government debt.

The evaluation of Regional Medium Term Development Plan Policy of Cianjur regency

“…by the government ". Finally, this policy is also called the government or state policy (Bare et al, 2019;Budi-Santoso et al, 2013;Heer & Scharrer, 2018).…”

Population Aging, Social Security and Fiscal Limits

“…The second extension considers the effects of non-linear taxation, as in Benabou (2002) , Heathcote et al (2017) , Heer and Scharrer (2018) and Holter et al (2018) . In particular, we adopt the approach of the latter and maintain the assumption that the capital income tax, the social security contribution and the consumption tax are levied at flat rates, while labor income is taxed progressively.…”

Projection Methods and the Curse of Dimensionality

“…As the nature of the model in Section 2 is rather complex and number of parameters for the policy coefficients is rather large, the minimization problem (19) displays many local minima. 20 We could only conceive a least squares algorithm with reasonably accurate results when we used the solution from our ad hoc collocation procedure as an initial guess for ϕ. The performance of the algorithm in this case is summarized in Table 5.…”

“…20 We also applied a genetic search algorithm in order to provide a more sophisticated guess for ϕ. In particular, we used a simple and fast genetic search algorithm based on [14] that is described in detail in [1], Chapter 8.…”