Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/308399 
Year of Publication: 
2024
Series/Report no.: 
CESifo Working Paper No. 11503
Publisher: 
CESifo GmbH, Munich
Abstract: 
The public debt overhang spread across advanced countries, and the reform of the Stability and Growth Pact in the Euro Zone, have revived the polarization between those who think that debt is always good and those who think that debt is always bad. This paper presents a normative model of endogenous growth with debt-financed public capital. It is shown that no meaningful assessment of debt and its effect on growth and sustainability at any point in time is possible without reference to the whole debt trajectory and the specific state of the economy along the trajectory. An orderly and consistent analysis may be developed along two coordinates of debt: sustainability/unsustainability, and efficiency/inefficiency. "High" and "low" debt/GDP ratios may equally be efficient and sustainable. On the other hand, debt may be sustainable but inefficient (sub-optimal growth), or sustainable and efficient ex-ante but unsustainable ex-post, or inefficient and unsustainable.
Subjects: 
public debt
debt burden
debt sustainability
economic growth
endogenous growth models
JEL: 
E62
H63
O40
Document Type: 
Working Paper
Appears in Collections:

Files in This Item:
File
Size





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.