Leveraging Posterity's Prosperity?
AEA Papers and Proceedings
vol. 110,
May 2020
(pp. 152-56)
Abstract
We critically review studies by Blanchard (B) and Rachel and Summers (RS). By the standard fiscal-gap measure, the US government is in dire fiscal shape thanks to constantly enlarging its postwar, take-as-you-go Ponzi scheme. Yet B and RS seemingly rationalize its expansion. Their arguments rest on the safe rate being very low. But almost all households face high safe rates—the rates available from pre-paying their loans. We also question modeling assumptions that help drive key B and RS results and reference recent simulation studies, which reach strongly opposite conclusions to B's.Citation
Brumm, Johannes, Laurence Kotlikoff, and Felix Kubler. 2020. "Leveraging Posterity's Prosperity?" AEA Papers and Proceedings, 110: 152-56. DOI: 10.1257/pandp.20201104Additional Materials
JEL Classification
- E43 Interest Rates: Determination, Term Structure, and Effects
- E62 Fiscal Policy
- G21 Banks; Depository Institutions; Micro Finance Institutions; Mortgages