TY  - JOUR
AU  - Kotlikoff,Laurence J.
TI  - Is Debt Neutral in the Life Cycle Model?
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 2053
PY  - 1986
Y2  - October 1986
UR  - http://www.nber.org/papers/w2053
L1  - http://www.nber.org/papers/w2053.pdf
N1  - Author contact info:
Laurence J. Kotlikoff
Department of Economics
Boston University
270 Bay State Road
Boston, MA 02215
Tel: 617/353-4002
Fax: 617/353-4001
E-Mail: kotlikoff@gmail.com
AB  - This paper questions the widely accepted view that deficits have real effects in the life cycle model. Standard analyses of deficits within life cycle models treat the government as a dictatorial entity that can effect any intergenerational redistribution it desires. In contrast, this paper drops the assumption of compulsion and models the government as a coalition of self-interested young and old generations whose bargaining determines government decisions. Since each generation is selfish, no generation will voluntarily absorb the debts of another except as a quid pro quo for receiving particular goods or services. Hence, redistribution per se between generations will not arise. Because each generation is ultimately responsible for its own liabilities, deficit finance, while altering the timing of tax receipts, has no economic impact.
ER  -