Government Debt and Capital Accumulation in an Era of Low Interest Rates

N. Gregory Mankiw

Brookings Papers on Economic Activity, 2022, vol. 53, issue 1 (Spring), 219-231

Abstract: This essay discusses the reasons for and implications of the decline in real interest rates around the world over the past several decades. It suggests that the decline in interest rates is largely explicable from trends in saving, growth, and markups. In this environment, greater government debt is likely not problematic from a budgetary standpoint. But a Ponzi-like scheme of perpetual debt rollover might fail, and such a failure would make a bad state of the world even worse. In addition, even if a perpetual debt rollover succeeds, the increased debt could still crowd out capital, reducing labor productivity, real wages, and consumption.

Keywords: real interest rates; monetary policy; fiscal policy; government debt (search for similar items in EconPapers)
Date: 2022
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Working Paper: Government Debt and Capital Accumulation in an Era of Low Interest Rates (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:bin:bpeajo:v:53:y:2022:i:2022-01:p:219-231

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