Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/229993
Authors: 
Hellwig, Martin
Year of Publication: 
2020
Series/Report no.: 
Discussion Papers of the Max Planck Institute for Research on Collective Goods No. 2020/7
Abstract: 
The paper contributes to the discussion on whether real interest rates smaller than real growth rates can be taken as evidence of dynamic in- efficiency that calls for…scal interventions. A seemingly killing objection points to the presence of land, a non-produced durable asset whose value becomes arbitrarily large as interest rates go to zero. Such an asset, it is claimed, can accommodate any need for a store of value at interest rates above growth rates, so dynamic inefficiency cannot arise. The paper shows that this objection is not robust to the presence of an arbitrarily small per-unit-of-value transaction cost. The paper also gives conditions under which…scal interventions provide for Pareto improvements even though the interventions themselves are also costly.
Subjects: 
Dynamic inefficiency
fiscal policy
public debt
overlapping-generations models with land
transaction costs
pay-as-you-go retirement provision
JEL: 
D15
D61
E21
E62
H63
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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