This dissertation investigates the impact of government policies on welfare in economies where private insurance contracts are not available and borrowing is limited. The first chapter investigates the effects of inflation in an incomplete markets economy in which the saving behavior of a continuum of infinitely-lived agents is influenced by precautionary saving motives and borrowing constraints. The results indicate that moderate rates of inflation maximize welfare. Higher rates of inflation discourage agents from borrowing, and the endogenous lower bound on bond holdings is higher than the exogenous borrowing limit.; In the second chapter, I ask the question whether existing subsidy programs for college education are welfare improving. I find that these subsidies can be very important in intergenerational consumption smoothing. Increased subsidies in particular appear to be quite helpful in helping households bear the large intergenerational consumption risk they face. My results are robust to income persistence, liquidity constraints, distortionary taxation, and limited liability on educational loans.; The third chapter tries to quantify the welfare implications of different levels of public debt when the return on entrepreneurial production is stochastic and uninsurable. On the cost side, the government has to use distortionary taxes to finance the interest payments on government debt. Furthermore, high levels of government debt can potentially crowd-out private investment. On the benefit side, agents with productive opportunities can smooth their net worth by holding government securities which may increase investment and output. I find that a zero-debt policy would imply a substantial welfare loss for the US economy.
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