Fiscal Policy in a Depressed Economy: A Comment

Robert Rowthorn

Working Papers from Centre for Business Research, University of Cambridge

Abstract: In an influential article, Delong and Summers (2012) consider the implications of hysteresis for government debt. They derive an upper limit for the after-tax real interest rate. If the interest rate is below this limit, the debt incurred during a one-off fiscal stimulus will be automatically repaid without the need for higher taxes. Their analysis assumes that a one-off stimulus leaves an infinite legacy of future benefits (hysteresis effects) that increase through time. This note extends their analysis to situations where hysteresis effects remain constant or decay in the course of time. By highlighting the hysteresis time profile, it provides a more transparent treatment of debt dynamics.

Keywords: DeLong and Summers; hysteresis; government debt (search for similar items in EconPapers)
JEL-codes: E63 H60 (search for similar items in EconPapers)
Date: 2019-06
New Economics Papers: this item is included in nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.jbs.cam.ac.uk/wp-content/uploads/2023/05/cbrwp513.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cbr:cbrwps:wp513

Access Statistics for this paper

More papers in Working Papers from Centre for Business Research, University of Cambridge
Bibliographic data for series maintained by Ruth Newman ().