Titelaufnahme

The paper contributes to the discussion on whether real interest rates smaller than real growth rates can be taken as evidence of dynamic in- e¢ ciency that calls for …scal interventions. A seemingly killing objection points to the presence of land, a non-produced durable asset whose value becomes arbitrarily large as interest rates go to zero. Such an asset, it is claimed, can accommodate any need for a store of value at interest rates above growth rates, so dynamic ine¢ ciency cannot arise. The paper shows that this objection is not robust to the presence of an arbitrarily small per-unit-of-value transaction cost. The paper also gives conditions under which …scal interventions provide for Pareto improvements even though the interventions themselves are also costly.