The Experts below are selected from a list of 360 Experts worldwide ranked by ideXlab platform
Olivier J Blanchard - One of the best experts on this subject based on the ideXlab platform.
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Public Debt and low interest rates
The American Economic Review, 2019Co-Authors: Olivier J BlanchardAbstract:This lecture focuses on the costs of Public Debt when safe interest rates are low. I develop four main arguments. First, I show that the current US situation, in which safe interest rates are expected to remain below growth rates for a long time, is more the historical norm than the exception. If the future is like the past, this implies that Debt rollovers, that is the issuance of Debt without a later increase in taxes, may well be feasible. Put bluntly, Public Debt may have no fiscal cost. Second, even in the absence of fiscal costs, Public Debt reduces capital accumulation, and may therefore have welfare costs. I show that welfare costs may be smaller than typically assumed. The reason is that the safe rate is the risk-adjusted rate of return to capital. If it is lower than the growth rate, it indicates that the risk-adjusted rate of return to capital is in fact low. The average risky rate however also plays a role. I show how both the average risky rate and the average safe rate determine welfare outcomes. Third, I look at the evidence on the average risky rate, i.e., the average marginal product of capital. While the measured rate of earnings has been and is still quite high, the evidence from asset markets suggests that the marginal product of capital may be lower, with the difference reflecting either mismeasurement of capital or rents. This matters for Debt: the lower the marginal product, the lower the welfare cost of Debt. Fourth, I discuss a number of arguments against high Public Debt, and in particular the existence of multiple equilibria where investors believe Debt to be risky and, by requiring a risk premium, increase the fiscal burden and make Debt effectively more risky. This is a very relevant argument, but it does not have straightforward implications for the appropriate level of Debt. My purpose in the lecture is not to argue for more Public Debt, especially in the current political environment. It is to have a richer discussion of the costs of Debt and of fiscal policy than is currently the case.
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Public Debt and low interest rates
Social Science Research Network, 2019Co-Authors: Olivier J BlanchardAbstract:This lecture focuses on the costs of Public Debt when safe interest rates are low. I develop four arguments.First, I show that the current U.S. situation in which safe interest rates are expected to remain below growth rates for a long time, is more the historical norm than the exception. If the future is like the past, this implies that Debt rollovers, that is the issuance of Debt without a later increase in taxes may well be feasible. Put bluntly, Public Debt may have no fiscal cost.Second, even in the absence of fiscal costs, Public Debt reduces capital accumulation, and may therefore have welfare costs. I show that welfare costs may be smaller than typically assumed. The reason is that the safe rate is the risk-adjusted rate of return to capital. If it is lower than the growth rate, it indicates that the risk-adjusted rate of return to capital is in fact low. The average risky rate however also plays a role. I show how both the average risky rate and the average safe rate determine welfare outcomes.Third, I look at the evidence on the average risky rate, i.e. the average marginal product of capital. While the measured rate of earnings has been and is still quite high, the evidence from asset markets suggests that the marginal product of capital may be lower, with the difference reflecting either mismeasurement of capital or rents. This matters for Debt: The lower the marginal product, the lower the welfare cost of Debt.Fourth, I discuss a number of arguments against high Public Debt, and in particular the existence of multiple equilibria where investors believe Debt to be risky and, by requiring a risk premium, increase the fiscal burden and make Debt effectively more risky. This is a very relevant argument, but it does not have straightforward implications for the appropriate level of Debt.My purpose in the lecture is not to argue for more Public Debt. It is to have a richer discussion of the costs of Debt and of fiscal policy than is currently the case. Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.
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Public Debt and low interest rates
Research Papers in Economics, 2019Co-Authors: Olivier J BlanchardAbstract:Blanchard develops four main arguments concerning the costs of Public Debt when safe interest rates are low. First, the current US situation in which safe interest rates are expected to remain below growth rates for a long time is more the historical norm than the exception. If the future is like the past, this implies that Debt rollovers—that is, the issuance of Debt without a subsequent increase in taxes—may well be feasible. Put bluntly, Public Debt may have no fiscal cost. Second, even without fiscal costs, Public Debt reduces capital accumulation and may therefore have welfare costs. However, welfare costs may be smaller than typically assumed. The reason is that the safe rate is the risk-adjusted rate of return on capital. A safe rate that is lower than the growth rate indicates that the risk-adjusted rate of return to capital is in fact low. The average risky rate, i.e. the average marginal product of capital, also plays a role, however. Blanchard shows how both the average risky rate and the average safe rate determine welfare outcomes. Third, while the measured rate of earnings has been and is still quite high, the evidence from asset markets suggests that the marginal product of capital may be lower, with the difference reflecting either mismeasurement of capital or rents. This matters for Debt: The lower the marginal product, the lower the welfare cost of Debt. Fourth, Blanchard discusses a number of arguments against high Public Debt, and in particular the existence of multiple equilibria where investors, believing Debt to be risky, require a risk premium, which increases the fiscal burden and makes Debt effectively more risky. This argument, while relevant, does not have straightforward implications for the appropriate level of Debt. Some of these conclusions will be controversial. But the aim of the paper is to foster a richer discussion of the costs of Debt and fiscal policy than is currently the case, not to argue for more Public Debt, especially in the current political environment. The appendices and data underlying this analysis and appendices are available https://piie.com/system/files/documents/wp19-4_0.zip
Alfred Greiner - One of the best experts on this subject based on the ideXlab platform.
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Public Debt in a basic endogenous growth model
Economic Modelling, 2012Co-Authors: Alfred GreinerAbstract:We work out the mechanism that makes Public Debt affect the allocation of resources in the long-run. To do so we analyze an AK growth model with elastic labor supply and a government sector. The government levies a distortionary income tax and issues bonds to finance lump-sum transfers and non-distortionary Public spending. We show that the long-run growth rate is the smaller the higher the Debt ratio if the government adjusts Public spending to fulfill its inter-temporal budget constraint. If the government adjusts lump-sum transfers the Public Debt ratio does not affect the balanced growth rate.
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Public Debt in a basic endogenous growth model
Social Science Research Network, 2012Co-Authors: Alfred GreinerAbstract:In this note we work out the mechanism that makes Public Debt affect the allocation of resources in the long-run. To do so we analyze an AK growth model with elastic labour supply and a government sector. The government levies a distortionary income tax and issues bonds to finance both lump-sum transfers and non-distortionary Public spending. We show that the long-run growth rate is the smaller the higher the Debt ratio if the government adjusts Public spending to meet its intertemporal budget constraint. If the government adjusts lump-sum transfers to fulfill its intertemporal budget constraint the Public Debt ratio does not affect the balanced growth rate.
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sustainable Public Debt and economic growth under wage rigidity
2011Co-Authors: Alfred GreinerAbstract:We analyze effects of Public Debt on economic growth in a basic endogenous growth model with persistent unemployment due to wages rigidities. We show that there exists either a unique balanced growth path or there are two balanced growth paths depending on structural parameters and on the flexibility of the labour market. Further, Public Debt does not affect long-run growth and employment but only stability of the economy. Stability is more likely when governments put a high weight on stabilizing the Public Debt to GDP ratio.
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economic growth Public Debt and welfare comparing three budgetary rules
German Economic Review, 2011Co-Authors: Alfred GreinerAbstract:. We present an endogenous growth model with externalities of capital and elastic labor supply where we allow for Public Debt and welfare-enhancing Public spending. We analyze different Debt policies as regards convergence to a balanced growth path and their effects on long-run growth and welfare. Three budgetary rules are considered: the balanced budget rule, a budgetary rule where Debt grows in the long run but at a rate lower than the balanced growth rate and a rule where Public Debt grows at the same rate as all other economic variables but where it guarantees that the intertemporal budget constraint is fulfilled.
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Sustainable Public Debt and Economic Growth Under Wage Rigidity
SSRN Electronic Journal, 2011Co-Authors: Alfred GreinerAbstract:We analyse the effects of Public Debt on economic growth in a basic endogenous growth model with persistent unemployment due to wages rigidities. We show that there exists either a unique balanced growth path or there are two balanced growth paths depending on structural parameters and on the flexibility of the labour market. Further, Public Debt does not affect long-run growth and employment but only stability of the economy. Stability is more likely when governments put a high weight on stabilizing the Debt to GDP ratio.
Balazs Egert - One of the best experts on this subject based on the ideXlab platform.
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Public Debt economic growth and nonlinear effects myth or reality
Journal of Macroeconomics, 2015Co-Authors: Balazs EgertAbstract:Abstract This paper puts a variant of the Reinhart–Rogoff dataset to a formal econometric testing to see whether Public Debt has a negative nonlinear effect on growth if Public Debt exceeds 90% of GDP. Using nonlinear threshold models, we show that finding a negative nonlinear relationship between the Public Debt-to-GDP ratio and economic growth is extremely difficult and sensitive to modelling choices and data coverage. In the very rare cases when nonlinearity a la Reinhart and Rogoff can be detected, the negative nonlinear correlation kicks in at very low levels of Public Debt (between 20% and 60% of GDP). These results, based on bivariate regressions for central government Debt from 1946 to 2009, are confirmed on a shorter dataset including general government Debt (1960–2010) using a multivariate growth framework and Bayesian model averaging.
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Public Debt economic growth and nonlinear effects myth or reality
Social Science Research Network, 2013Co-Authors: Balazs EgertAbstract:This paper puts the Reinhart-Rogoff dataset to a formal econometric testing to see whether Public Debt has a negative nonlinear effect on growth if Public Debt exceeds 90% of GDP. Using nonlinear threshold models, we show that the negative nonlinear relationship between Debt and growth is very sensitive to modelling choices. We also show that when nonlinearity is detected, the negative nonlinear effect kicks in at much lower levels of Public Debt (between 20% and 60% of GDP). These results, based on bivariate regressions on secular time series, are confirmed on a shorter dataset (1960-2010) using a multivariate growth framework.
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Public Debt economic growth and nonlinear effects myth or reality
Research Papers in Economics, 2012Co-Authors: Balazs EgertAbstract:The economics profession seems to increasingly endorse the existence of a strongly negative nonlinear effect of Public Debt on economic growth. Reinhart and Rogoff (2010) were the first to point out that a Public Debt-to-GDP ratio higher than 90% of GDP is associated with considerably lower economic performance in advanced and emerging economies alike. A string of recent empirical papers broadly validates this threshold value. This paper seeks to contribute to this literature by putting a variant of the Reinhart-Rogoff dataset to a formal econometric testing. Using nonlinear threshold models, there is some evidence in favour of a negative nonlinear relationship between Debt and growth. But these results are very sensitive to the time dimension and country coverage considered, data frequency (annual data vs. multi-year averages) and assumptions on the minimum number of observations required in each nonlinear regime. In addition, we also show that nonlinear effects can kick in at much lower levels of Public Debt (between 20% and 60% of GDP). These results, based on bivariate regressions on secular time series, are largely confirmed on a shorter dataset (1960-2010) when using a multivariate growth framework that accounts for traditional drivers of long-term economic growth and model uncertainty. Nonlinear effects might be more complex and difficult to model than previously thought. Instability might be a result of nonlinear effects changing over time, across countries and economic conditions. Further research is certainly needed to fully understand the link between Public Debt and growth.
Ducanh Le - One of the best experts on this subject based on the ideXlab platform.
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government expenditure external and domestic Public Debt and economic growth
Journal of Public Economic Theory, 2019Co-Authors: Phu Nguyenvan, Amelie Barbiergauchard, Ducanh LeAbstract:This paper analyzes the relationship between government expenditure, tax on returns to asset, Public Debt, and economic growth. Public Debt is composed of two components, domestic Debt and external Debt. We show that an increase in the tax rate on returns to asset leads to an increase in government expenditure, consumption, and domestic Debt. However, the impact of tax rate on external Debt is unclear. In some situation, in particular when the productivity of capital on production is low (high) and the tax rate is lower (higher) than a threshold, the relation between external Debt and the tax rate has a bell-shaped form, i.e. external Debt firstly rises then decreases with the tax rate.
Amélie Barbier-gauchard - One of the best experts on this subject based on the ideXlab platform.
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Government expenditure, external and domestic Public Debt, and economic growth
Journal of Public Economic Theory, 2019Co-Authors: Cuong Le Van, Van Phu Nguyen, Amélie Barbier-gauchardAbstract:This paper analyzes the relationship between government expenditure, tax on returns to assets, Public Debt, and growth in an endogenous growth model. Public Debt is composed of two components, domestic Debt and external Debt. We show conditions for existence, uniqueness, and multiplicity of the steady states. More precisely, existence of steady state requires a sufficiently high productivity and a sufficiently low tax on returns to assets. We also provide the effects of an increase in the tax rate on returns to assets on the steady state. In particular, the relation between Public spending and the tax rate has a bell shape. Domestic Debt unambiguously increases with tax whereas external Debt displays an inverted U-shaped curve. A high tax rate leads to a reallocation of Public Debt in favor of domestic Debt (to the detriment of external Debt). The effect of taxation on consumption (and production) also displays a nonlinear pattern when the output elasticity of capital is lower than unity (the effect is monotonously increasing if this elasticity is unity). We also derive the conditions under which a tax increase can boost or reduce the balanced growth rate.
