Data and Code for: Optimal Public Debt with Life Cycle Motives

This paper determines optimal public debt in a life cycle model with incomplete markets that matches the empirically observed variation in consumption, labor and savings, both in the cross section of U.S. households and by age. We find that public savings, not public debt, equal to 168% of output is optimal, primarily due to the influence of the life cycle on household decision-making. By inducing a lower interest rate, public savings slows the empirically observed rate of consumption and leisure growth over an average household's lifetime, and the resulting flatter allocation of lifetime consumption and leisure improves welfare. We show that when including the life cycle these welfare benefits are large; so large that, on net, they outweigh the transitional costs from a tax-financed public debt elimination. <br><br>