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Sustainability of the public debt and wealth inequality in a general equilibrium model
1 : The University of Kitakyushu
2 : Institute of Economic Research, Kyoto University
This study investigates the correlation between sustainability of the public debt and wealth inequality in an endogenous growth model with heterogeneous agents. We show that the threshold for the sustainability of public debt can be related to not only relative size of public debt but also wealth inequality. In addition, this study examines the effects of budget deficit and redistributive policies on the sustainability of the public debt and wealth inequality. We show that an increase in the deficit ratio or the redistributive tax makes the public debt less sustainable. If the economy falls into the unsustainable region as a result of the policy change, both public debt and wealth inequality continue to increase.
