The Interplay of Interest Rates and Debt-Financed Government Spending

Bev Dahlby and Ergete Ferede

No 47, EconPol Policy Brief from ifo Institute - Leibniz Institute for Economic Research at the University of Munich

Abstract: Proponents focus on the average fiscal cost of program spending when the interest rate on government debt is less than the economy’s growth rate. They ignore the potentially large marginal fiscal cost of deficit-financed increases in spending that arise when a higher public debt increases interest rates on government debt and lowers growth rates.

Date: 2023
New Economics Papers: this item is included in nep-fdg
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