Are Government Bonds Net Wealth?

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Are Government Bonds Net Wealth?

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dc.contributor.author Barro, Robert J.
dc.date.accessioned 2010-01-12T19:22:02Z
dc.date.issued 1974
dc.identifier.citation Barro, Robert J. 1974. Are government bonds net wealth? Journal of Political Economy 82(6): 1095-1117. en_US
dc.identifier.issn 0022-3808 en_US
dc.identifier.uri http://nrs.harvard.edu/urn-3:HUL.InstRepos:3451399
dc.description.abstract The assumption that government bonds are perceived as net wealth by the private sector is crucial in demonstrating real effects of shifts in the stock of public debt. In particular, the standard effects of "expansionary" fiscal policy on aggregate demand hinge on this assumption. Government bonds will be perceived as net wealth only if their value exceeds the capitalized value of the implied stream of future tax liabilities. This paper considers the effects on bond values and tax capitalization of finite lives, imperfect private capital markets, a government monopoly in the production of bond "liquidity services," and uncertainty about future tax obligations. It is shown within the context of an overlapping-generations model that finite lives will not be relevant to the capitalization of future tax liabilities so long as current generations are connected to future generations by a chain of operative intergenerational transfers (either in the direction from old to young or in the direction from young to old). Applications of this result to social security and to other types of imposed intergenerational transfer schemes are also noted. In the presence of imperfect private capital markets, government debt issue will increase net wealth if the government is more efficient, at the margin, than the private market in carrying out the loan process. Similarly, if the government has monopoly power in the production of bond "liquidity services," then public debt issue will raise net wealth. Finally, the existence of uncertainty with respect to individual future tax liabilities implies that public debt issue may increase the overall risk contained in household balance sheets and thereby effectively reduce household wealth. en_US
dc.description.sponsorship Economics en_US
dc.language.iso en_US en_US
dc.publisher University of Chicago Press en_US
dc.relation.isversionof doi:10.1086/260266 en_US
dash.license LAA
dc.title Are Government Bonds Net Wealth? en_US
dc.type Journal Article en_US
dc.description.version Version of Record en_US
dc.relation.journal Journal of Political Economy -Chicago- en_US
dash.depositing.author Barro, Robert J.
dc.date.available 2010-01-12T19:22:02Z

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  • FAS Scholarly Articles [6948]
    Peer reviewed scholarly articles from the Faculty of Arts and Sciences of Harvard University

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