Public debt, secular stagnation and functional finance

Arbeitspapier

Fiscal policy and public debt may be required to maintain full employment and avoid secular stagnation. This conclusion emerges from a range of different models, including OLG specifications and stock-flow consistent (post-) Keynesian models. One of the determinants of the required long-run debt ratio is the rate of economic growth. Low growth leads to high debt, and empirical correlations between growth and debt may reflect this causal effect of growth on debt, rather than negative effects of debt on growth. A second result relates directly to austerity policies. The level of government consumption and the structure of taxation influence the required debt ratio and, paradoxically, austerity policies are counterproductive on their own terms: cuts in government consumption lead to an increase in the required level of debt.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Working Paper ; No. 2015-12

Classification and Topics

• Classification: Wirtschaft ; Fiscal Policy ; Investment; Capital; Intangible Capital; Capacity
• Subject: functional finance ; zero lower bound ; liquidity trap ; fiscal policy ; secular stagnation ; austerity ; public debt

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Skott, Peter
• Event: Veröffentlichung
• (who): University of Massachusetts, Department of Economics
• (where): Amherst, MA
• (when): 2015

Further information

• Handle: http://hdl.handle.net/10419/174385
• Last update: 10.03.2025, 11:41 AM CET