Creator: Miller, Preston J. and Todd, Richard M. Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 494 Abstract:
This paper investigates the macroeconomic and welfare effects of a particular public finance decision. That decision was to use debt rather than current taxation to finance deposit insurance payments related to the savings and loan debacle. We find that this decision could have significantly raised real interest rates and affected welfare. The analysis is conducted in a dynamic, open-economy, monetary general equilibrium model in which parameters are set based on empirical observations.
Keyword: S & L, Public finance, Real interest rates, Welfare, Deposit insurance, Taxation, Government debt, and Savings and loan Subject (JEL): G21 - Banks; Depository Institutions; Micro Finance Institutions; Mortgages and H63 - National Debt; Debt Management; Sovereign Debt