Government Debt and Capital Accumulation in an Era of Low Interest Rates

N. Gregory Mankiw

No 30024, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This essay discusses the reasons for and implications of the decline in real interest rates around the world over the past several decades. It suggests that the decline in interest rates is largely explicable from trends in saving, growth, and markups. In this environment, greater government debt is likely not problematic from a budgetary standpoint. But a Ponzi-like scheme of perpetual debt rollover might fail, and such a failure would make an already-bad state of the world even worse. In addition, even if a perpetual debt rollover succeeds, the increased debt could still crowd out capital, reducing labor productivity, real wages, and consumption.

JEL-codes: E13 E22 E62 H41 H63 (search for similar items in EconPapers)
Date: 2022-05
New Economics Papers: this item is included in nep-fdg, nep-mac and nep-opm
Note: EFG PE
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Citations: View citations in EconPapers (5)

Published as N. Gregory Mankiw, 2022. "Government Debt and Capital Accumulation in an Era of Low Interest Rates," Brookings Papers on Economic Activity, vol 2022(1), pages 219-231.

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