Costly Increases in Public Debt when r

Costly Increases in Public Debt when r < g

By Yongquan Cao, Vitor Gaspar, Adrian Peralta Alva

January 12, 2024

Preview Citation

Format: Chicago

Yongquan Cao, Vitor Gaspar, and Adrian Peralta Alva. Costly Increases in Public Debt when r < g, (USA: International Monetary Fund, 2024) accessed December 22, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

This paper quantifies the costs of a permanent increase in debt to GDP. We employ a deterministic, overlapping generations model with two assets and no risk of default. The two assets are public debt and private (productive) capital. We assume that the return on private capital equals the interest rate on public debt plus an exogenously given spread. Employing a analytical version of the model we show an example in which a permanent rise in the public debt ratio leads to a significant reduction in steady-state GDP even as r

Subject: Expenditure, Financial institutions, Government debt management, Intangible capital, National accounts, Public debt, Public financial management (PFM), Sovereign bonds

Keywords: Crowding out, Global, Government debt management, IMF working paper No. 2024/10, Increases in public debt, Intangible capital, Public debt, Public debt debt ratio, Sovereign bonds, Steady state GDP, Tax financing

Publication Details

Pages:

29
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2024/010
Stock No:

WPIEA2024010
ISBN:

9798400263620
ISSN:

1018-5941

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