Government Debt and Wealth Inequality: Theory and Insights from Altruism

Chatzouz, Moustafa (2014): Government Debt and Wealth Inequality: Theory and Insights from Altruism.

Abstract

High levels of either public debt or wealth inequality are detrimental to social and economic stability. At a time when reducing public debt and decreasing wealth inequality have become important policy priorities, the question arises about whether these two goals stand in conflict. Here, we show that, indeed, a reduction of government debt increases wealth inequality regardless of who bears the tax burden. Our model builds on a simple yet plausible wealth-accumulation process, where generations are linked through joy-of-giving bequests, and taxes fall on labour income. Predictions of the model are consistent with growing evidence that debt adjustments amplify economic inequalities.

• Item Type: MPRA Paper
• Language: English
• Keywords: Government debt, Wealth Inequality, Altruism, Over-lapping generations model.
• Subjects: D - Microeconomics > D3 - Distribution > D31 - Personal Income, Wealth, and Their Distributions; E - Macroeconomics and Monetary Economics > E6 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook > E62 - Fiscal Policy; H - Public Economics > H3 - Fiscal Policies and Behavior of Economic Agents > H30 - General; H - Public Economics > H6 - National Budget, Deficit, and Debt > H60 - General; H - Public Economics > H6 - National Budget, Deficit, and Debt > H63 - Debt ; Debt Management ; Sovereign Debt

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