Audrey Desbonnet

Why Do Governments End Up with Debt? Short‐Run Effects Matter

This paper reconsiders the impact of public debt in an economy with heterogeneous households and incomplete markets to emphasize the short-run effects of an increase in public debt. As compared to models that rest on steady-state analysis, we show that the welfare gains of a public debt increase are substantially higher when transitional dynamics are accounted for. The additional debt issue allows for a temporary reduction in the income tax rate, which stimulates labor supply and generates an overshooting of the interest rate. The short-run gains create a temptation to deviate toward higher levels of debt. Debt increases continue to generate welfare gains even when debt is considerably higher than its long-run optimal level.

Public Debt And Aggregate Risk

This paper assesses the long-run optimal level of public debt in a framework where aggregate fluctuations are taken into account. Households are subject to both aggregate and idiosyncratic shocks and the market structure prevents them from perfectly insuring against risk. We find that the long-run optimal level of public debt is generally higher in a setting embedding aggregate fluctuations than in a setting without. Aggregate fluctuations modify both the cost and the motive for precautionary saving. Higher levels of public debt, by effectively reducing the cost of precautionary saving, help agents to smooth consumption when they face price and employment fluctuations.

Allocation chômage: entre efficacité et égalité

This paper reconsiders the trade-off between efficiency and equality of unemployment insurance in a job search model with precautionary saving. Contrary to Cahuc and Lehmann [2000], we show that a decreasing profile of unemployment benefits is able to alleviate this trade-off when agents can save. It is due to a change in saving time profile and an increase in job search effort. The short term unemployed begins to save when unemployment benefits become declining. When the unemployment episode expands, he becomes long term unemployed and dissaves which enables to support his consumption to a higher level.