# Optimal Public Debt with Redistribution

**URL:** https://discourse.vfitoolkit.com/t/optimal-public-debt-with-redistribution/690
**Category:** Uncategorized
**Created:** [July 23, 2026, 3:08am UTC](https://discourse.vfitoolkit.com/t/optimal-public-debt-with-redistribution/690 "2026-07-23T03:08:57Z")
**Posts on this page:** 1
**Page:** 1

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### Author: ![aledinola](https://discourse.vfitoolkit.com/letter_avatar_proxy/v4/letter/a/3ec8ea/32.png) [@aledinola](https://discourse.vfitoolkit.com/u/aledinola)
#### Post date: [July 23, 2026, 3:08am UTC](https://discourse.vfitoolkit.com/t/optimal-public-debt-with-redistribution/690/1 "2026-07-23T03:08:57Z")

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A very interesting paper by Matias Bayas-Erazo, [“Optimal Public Debt with Redistribution”](https://matiasbayas-erazo.com/working-papers/pdr/?utm_source=chatgpt.com), was presented today at the NBER Summer Institute’s [Inequality and Macroeconomics workshop](https://www.nber.org/conferences/si-2026-inequality-and-macroeconomics). Video on youtube.

The paper jointly studies the optimal degree of tax progressivity and the optimal supply of public debt in a standard heterogeneous-agent incomplete-markets economy. It solves the **fully dynamic Ramsey problem** , including both the optimal long-run policy and the transition toward it. This is a technically demanding problem; interested readers can find the computational and theoretical details in the paper.

For students and researchers interested in experimenting with the simpler steady-state version of the model used in the paper, the following VFI Toolkit examples provide useful starting points:

- [Aiyagari (1994) example](https://github.com/vfitoolkit/VFItoolkit-matlab-examples/blob/master/HeterogeneousAgentModels/Aiyagari1994.m?utm_source=chatgpt.com)
- [Guerrieri and Lorenzoni (2017) example](https://github.com/vfitoolkit/VFItoolkit-matlab-examples/blob/master/HeterogeneousAgentModels/GuerrieriLorenzoni2017_Example.m?utm_source=chatgpt.com)

The first illustrates how to solve a standard stationary Aiyagari economy in general equilibrium. The second is particularly relevant because it features government bonds and endogenous labor supply.

These examples could be adapted relatively easily to construct a steady-state version of the paper’s benchmark model: a Huggett-style economy in which government bonds are the only asset, households face idiosyncratic productivity risk and choose labor supply, and labor income is subject to a constant-rate-of-progressivity tax schedule of the type used by Bénabou and Heathcote, Storesletten, and Violante.