Public Debt and Economic Growth in Colombia: An Approach to Overlapping Generations
Abstract
With a selective reference is pointed out how the domestic and external public debt affects
the saving decisions and the financial markets through the optimum tax policy. After that the
behaviour of the domestic and external public debt and also the external private debt is studied
through the data. The roll of the Colombian pension fond to finance the public deficit is explained.
An overlapping generation model is constructed with the most important Colombian stylized
facts. The theoretical model is calibrated for 12 generations, 12 periods each one of 5 years.
The labour life of the individuals is ten periods and the pension periods are two. The behaviour
of the household economies and productive sector are studied with respect to the previous
assumptions. The labour productivity, both by experience and between generations, is
estimated in order to calibrate the model. The public and private debt and economic growth
simulations are conducted with the Colombian parameters in 2005. The simulations are realized
changing: i) the total factor productivity; ii) external interest rate; and iii) the public expenditure.
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