چكيده لاتين
In recent decades, the impact of government debt on the economy has been one of the important concerns of policymakers. However, given the evolving economic, social, and political conditions of an economy, there is no specific threshold for public debt, and determining its optimal level remains a fundamental challenge. Moreover, in modern macroeconomics the analysis of public debt extends beyond assessment of the government’s fiscal position, and within precautionary saving frameworks, is regarding as a key determinant of households’ intertemporal behavior. I these models, which are based on assumption of incomplete markets and borrowing constraints, households hold risk-free assets to insure themselves against income uncertainty. From this perspective, government debt can serve as a safe asset and thereby ease consumption smoothing for households; however, excessive expansion of public debt may lead to the crowding out of private capital and reduce economic growth. Hence, identifying the welfare-maximizing level of government debt while accounting for precautionary-saving motives is a central challenge in economies with incomplete markets.
Accordingly, this dissertation evaluates the welfare effects of the government debt ratio in Iran and derives its optimal level using a structural model tailored to Iran’s economic and social conditions. Taking widespread credit constraints as a clear manifestation of market incompleteness in Iran, as well as the economy’s inflationary environment, the analysis presented here is based on a heterogeneous agent incomplete market model, following the approach of Aiyagari (1994), and households face budget and borrowing constraints in addition to idiosyncratic wage risk. This dissertation develops the model of Aiyagari and McGrattan (1994, 1998) by incorporating land, time deposits, and precious metals (gold and gold coins), which Iranian households use as precautionary savings in addition to debt and capital. The Finite Element Method (FEM) is used for the numerical solution of the model, and the model is calibrated using Fortran codes executed by Visual Studio 2012 and the Intel Fortran 2015 compiler.
The findings indicate that the optimal level of debt, according to welfare criteria, is significantly negative, and the welfare benefit resulting from moving toward the optimal state is approximately 2.66 percent of per capita consumption. Therefore, the negative role that debt plays in the model (crowding out private capital) outweighs the positive role of enhancing household liquidity. The optimal interest rate and the optimal tax rate are both lower than their current values. Sensitivity analysis also shows that the initial findings are robust to changes in parameter values. A negative optimal debt ratio suggests that long-run assets accumulation by the government and financing of expenditures through asset returns can raise welfare without resorting to distortionary taxation. Even reducing the debt-to-GDP ratio from its current level (39.53 percent) to lower, still-positive values improves per-capita welfare. With the development of financial markets and the relaxation of credit constraints (moving towards complete market conditions), the welfare gap between the current level of debt and the optimal level will decrease, due to the reduced need for households to self-insure and hold risk-free assets.
