Fiscal Stagnation

Luca Fornaro and Martin Wolf

No 20149, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: We study public debt sustainability in an economy with endogenous productivity growth. Our model has two key features: i) financing large primary surpluses entails fiscal distortions that depress investment and growth, ii) low growth increases the primary surpluses needed to stabilize the public debt-to-GDP ratio. Negative shocks to fundamentals or pessimistic animal spirits may drive the economy into a state of fiscal stagnation, characterized by high public debt, large fiscal distortions and low productivity growth. We discuss policy options to avoid/escape fiscal stagnation.

Keywords: Stagnation (search for similar items in EconPapers)
JEL-codes: E22 E62 H63 O40 (search for similar items in EconPapers)
Date: 2025-04
References: Add references at CitEc
Citations:

Downloads: (external link)
https://cepr.org/publications/DP20149 (application/pdf)

Related works:
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:cpr:ceprdp:20149

Ordering information: This working paper can be ordered from
https://cepr.org/publications/DP20149

Access Statistics for this paper

More papers in CEPR Discussion Papers from Centre for Economic Policy Research 33 Great Sutton Street, London EC1V 0DX, UK.
Bibliographic data for series maintained by CEPR ().