Environmental Valuation & Cost-Benefit News
The social value of risk-free government debt
03/21/08
10:08:16 am, by damageva 
, 171 words, 114 views 
Categories: Air, Non-Environmental, U.S., Academic Study/Journal Article, Costs and Benefits
The social value of risk-free government debt
Abstract: Can eliminating the stock of government bonds reduce welfare? When the government must raise revenue to pay interest on its bonds, the social value of government debt hinges on whether the benefits from greater portfolio diversification outweigh the costs of the revenue-raising efforts. A positive stock of debt is optimal only if interest payments are financed by an inflation tax, agents are not too risk averse, there is a government budget deficit, and the economy is on the bad side of the Laffer curve. Welfare is higher on the good side of the Laffer curve without bonds.
Keywords: Government debt, Fiscal policy, Monetary policy, Portfolio allocation
by Stacey L. Schreft 1 and Bruce D. Smith 2
1. Economic Research Department, Federal Reserve Bank of Kansas City, Kansas City, MO 64198, USA; Email: Stacey.L.Schreft@kc.frb.org
2. Department of Economics, University of Texas-Austin, Austin, TX 78712, USA
Annals of Finance via Springer Publishing www.SpringerLink.com
Volume 4, Number 2; March, 2008; Pages 131-155
DOI: 10.1007/s10436-007-0073-3
http://www.springerlink.com/content/0r7689j92g525640/
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