Rising Government Debt: Causes and Solutions for a Decades-Old Trend

Pierre Yared

No 24979, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Over the past four decades, government debt as a fraction of GDP has been on an upward trajectory in advanced economies, approaching levels not reached since World War II. While normative macroeconomic theories can explain the increase in the level of debt in certain periods as a response to macroeconomic shocks, they cannot explain the broad-based long-run trend in debt accumulation. In contrast, political economy theories can explain the long-run trend as resulting from an aging population, rising political polarization, and rising electoral uncertainty across advanced economies. These theories emphasize the time-inconsistency in government policymaking, and thus the need for fiscal rules that restrict policymakers. Fiscal rules trade off commitment to not overspend and flexibility to react to shocks. This tradeoff guides design features of optimal rules, such as information dependence, enforcement, cross-country coordination, escape clauses, and instrument vs. target criteria.

JEL-codes: D02 E62 H21 H6 (search for similar items in EconPapers)
Date: 2018-08
New Economics Papers: this item is included in nep-his, nep-mac and nep-pbe
Note: EFG PE POL
References: Add references at CitEc
Citations: View citations in EconPapers (7)

Published as Pierre Yared, 2019. "Rising Government Debt: Causes and Solutions for a Decades-Old Trend," Journal of Economic Perspectives, vol 33(2), pages 115-140.

Downloads: (external link)
http://www.nber.org/papers/w24979.pdf (application/pdf)

Related works:
Journal Article: Rising Government Debt: Causes and Solutions for a Decades-Old Trend (2019)
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:nbr:nberwo:24979

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w24979

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().