A Review of Public Debt Effects in Theory‐Based Models

El Mostafa Bentour and Cyriac Guillaumin ()
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El Mostafa Bentour: CREG - Centre de recherche en économie de Grenoble - UGA - Université Grenoble Alpes
Cyriac Guillaumin: CREG - Centre de recherche en économie de Grenoble - UGA - Université Grenoble Alpes

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Abstract: This article provides an overview of the effects of government debt in economic models over a century of economic modeling. We reviewed the most important contributions, examining the impact of public debt on economic growth and the behavior of economic agents and intergenerational inequalities. We focused on how public debt interacts with economic indicators and its effects on economic growth, well‐being, and inter/intra‐generational distribution. We particularly examined the main features and analyzed the underlying key assumptions that have fueled controversies and criticism for the following types of models: (1) the infinitely lived agents (ILA) and overlapping generations (OLG) models, (2) the endogenous growth models, (3) the new Keynesian models, and (4) the new political economy of public debt. We also highlighted the main debates regarding adopting unrealistic assumptions in these models and the primary limitations of the reviewed models. Such limitations, coupled with increasing challenges related to the financing needs of ageing populations and climate‐related issues, urge a paradigm shift in research that calls for insights from other disciplines, such as sociology, behavioral economics, and political science.

Keywords: altruism; endogenous growth models; heterogeneity; neoclassical growth models; new Keynesian models; rationality; Ricardian neutrality (search for similar items in EconPapers)
Date: 2025
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Published in Journal of Economic Surveys, 2025, ⟨10.1111/joes.70033⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-05477663

DOI: 10.1111/joes.70033

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