In a dynamically efficient economy, can a government roll its debt forever and avoid the need to raise taxes? In a series of examples of economies with zero growth, this paper shows that such Ponzi games may be infeasible even when the average rate of return on bonds is negative, and may be feasible even when the average rate of return on bonds is positive. The paper then reveals the structure which underlies these examples.

Abraham, Arpad / Carceles-Poveda , Eva / Cavalcanti, Tiago / Kambourov, Gueorgui / Lambertini, Luisa / Ruhl, Kim / Tavares, Jose
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Dynamic Efficiency, the Riskless Rate, and Debt Ponzi Games under Uncertainty
1MIT and NBER, blanchar@mit.edu
2Université Libre de Bruxelles (ECARES), CEPR and NBER, Philippe.Weil@ulb.ac.be
Citation Information: Advances in Macroeconomics. Volume 1, Issue 2, Pages –, ISSN (Online) 1534-6013, DOI: 10.2202/1534-6013.1031, November 2001
Publication History:
- Published Online:
- 2001-11-27
Keywords: dynamic efficiency; riskless rate; ponzi games


















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