The debt trap: A two-compartment train wreck… and how to avoid it

Marc Artzrouni () and Fabio Tramontana

Journal of Policy Modeling, 2014, vol. 36, issue 2, 241-256

Abstract: We explore sustainable paths out of a debt trap with a highly stylized two-sector differential equations model for the stocks of money in Government and Society. The model fits the data for the U.S. between 1981 and 2012 with a coefficient of correlation of 0.996. The solutions provide detailed “escape conditions” from the debt trap. A primary surplus is required. Then a government can escape its debt trap either through sustained annual monetary outflows from society to the government (taxation) but with a low initial growth rate, or through annual monetary inflows into both sectors (stimulus) with higher initial growth rate. We illustrate the use of our model with simulations which show how five indebted countries can escape their debt trap in 30 (or 70) years.

Keywords: Compartmental model; Debt; System of differential equations; Dynamical system; Fiscal policy (search for similar items in EconPapers)
JEL-codes: C51 C62 C63 E61 H63 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jpolmo:v:36:y:2014:i:2:p:241-256

DOI: 10.1016/j.jpolmod.2014.01.012

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