Public debt frontiers: The Greek case

Gonzalo F. de-Córdoba () and Jose Torres ()
Additional contact information
Gonzalo F. de-Córdoba: Departamento de Teoría e Historia Económica, Universidad de Málaga
Authors registered in the RePEc Author Service: Gonzalo Fernandez-de-Cordoba

No 2016-03, Working Papers from Universidad de Málaga, Department of Economic Theory, Málaga Economic Theory Research Center

Abstract: This paper attempts to quantify the maximum amount of debt that a government can sustain by itself. Using a Dynamic General Equilibrium model where the government is fully characterized, we compute the steady state inverse relationship between the public debt to output ratio and the size of the government, measured as the total public expenditures to output ratio. This line, called the debt frontier, divides the debt/output, expenditure/output space in two regions: The upper contour set corresponds to debt to output ratios where public debt is long-run unsustainable. Calibration of the model for the Greek economy to ?scal targets reveals that, for the period just before the current recession, i.e. 2002-2006, the debt to GDP ratio was well below the calculated frontier, and that Greek ?scal ?gures where in line with other euro area countries. We conclude that an original ?scal indiscipline did not cause the debt crisis and we have to look for alternative causes such as self-ful?lling crises such as the gambling for redemption hypothesis.

JEL-codes: H5 H6 (search for similar items in EconPapers)
Pages: 41 pages
Date: 2016-10
New Economics Papers: this item is included in nep-fdg and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://theeconomics.uma.es/malagawpseries/Papers/METCwp2016-3.pdf First version, 2016 (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:mal:wpaper:2016-3

Access Statistics for this paper

More papers in Working Papers from Universidad de Málaga, Department of Economic Theory, Málaga Economic Theory Research Center Contact information at EDIRC.
Bibliographic data for series maintained by Ascension Andina ().