The public debt multiplier

Alice Albonico, Guido Ascari and Alessandro Gobbi

Journal of Economic Dynamics and Control, 2021, vol. 132, issue C

Abstract: We study the effects on economic activity of a pure temporary change in government debt and the relationship between the debt multiplier and the level of debt in an overlapping generations framework. The debt multiplier is positive but quite small during normal times while it is much larger during crises. Moreover, it increases with the steady state level of debt. Hence, the call for fiscal consolidation during recessions seems ill-advised. Finally, a rise in the steady state debt-to-GDP level increases the steady state real interest rate providing more room for manoeuvre to monetary policy to fight deflationary shocks.

Keywords: Fiscal policy; Public debt; Multiplier; Overlapping generations (search for similar items in EconPapers)
JEL-codes: E52 E62 H63 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Working Paper: The public debt multiplier (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:dyncon:v:132:y:2021:i:c:s0165188921001391

DOI: 10.1016/j.jedc.2021.104204

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