Abstract
To understand whether and how movements of government debt and household debt are related, stationary equilibrium government debt and household debt are characterized in a politico-economic model where office-seeking policymakers decide government debt and individual voters can borrow facing uninsurable idiosyncratic income shocks. An increase in uninsurable income risk unconditionally raises stationary equilibrium government debt and aggregate household debt together, while an increase in household-loan collateral value or population aging conditionally does so, entailing positive correlations between these two debts’ movements. In contrast, an increase in interest rate conditionally causes these two debts to move in the opposite directions.
