Costly Increases in Public Debt when r

Yongquan Cao, Vitor Gaspar and Adrian Peralta

No 2024/010, IMF Working Papers from International Monetary Fund

Abstract: This paper quantifies the costs of a permanent increase in debt to GDP. We employ a deterministic, overlapping generations model with two assets and no risk of default. The two assets are public debt and private (productive) capital. We assume that the return on private capital equals the interest rate on public debt plus an exogenously given spread. Employing a analytical version of the model we show an example in which a permanent rise in the public debt ratio leads to a significant reduction in steady-state GDP even as r

Keywords: Crowding out; public debt; public debt debt ratio; IMF working paper No. 2024/10; steady state GDP; increases in public debt; tax financing; Government debt management; Sovereign bonds; Intangible capital; Global (search for similar items in EconPapers)
Pages: 29
Date: 2024-01-12
New Economics Papers: this item is included in nep-dge and nep-fdg
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