IDEAS home Printed from https://ideas.repec.org/a/bba/j00004/v2y2023i2p40-51d91.html
   My bibliography  Save this article

Don’t worry about the debt-GDP Ratio

Author

Listed:
  • Yasuhito Tanaka

    (Faculty of Economics, Doshisha University, Kyoto, Japan)

Abstract

I will show that if the propensity to consume from savings satisfies appropriate conditions, the debt-GDP ratio will not grow infinitely large and fiscal collapse will not occur. Using a basic macroeconomic model, with an overlapping generations model in mind, we show the following results: 1) The budget deficit including interest payments on the government bonds equals an increase in the savings from a period to the next period. 2) If the savings in the first period is positive, we need budget deficit to maintain full employment under constant prices or inflation in the later periods. 3) Under an appropriate assumption about the propensity to consume from savings, the debt-GDP ratio converges to a finite value. It does not diverge to infinity. The larger the propensity to consume from savings, the smaller the budget deficit required to achieve full employment. The larger the propensity to consume from savings, the less likely it is that the debt-GDP ratio will become large.

Suggested Citation

  • Yasuhito Tanaka, 2023. "Don’t worry about the debt-GDP Ratio," Economic Analysis Letters, Anser Press, vol. 2(2), pages 40-51, May.
    • Handle: RePEc:bba:j00004:v:2:y:2023:i:2:p:40-51:d:91
    as

    Download full text from publisher

    File URL: https://www.anserpress.org/journal/eal/2/2/24/pdf
    Download Restriction: no
    File URL: https://www.anserpress.org/journal/eal/2/2/24
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Otaki, Masayuki, 2009. "A welfare economics foundation for the full-employment policy," Economics Letters, Elsevier, vol. 102(1), pages 1-3, January.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Yasuhito Tanaka, 2023. "Indivisible Labor Supply And Involuntary Unemployment: Monopolistic Competition Model," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 68(06), pages 1953-1966, December.
    2. Yasuhito Tanaka, 2021. "An Elementary Mathematical Model for MMT (Modern Monetary Theory)," Research in Applied Economics, Macrothink Institute, vol. 13(3), pages 1-20, September.
    3. Yasuhito Tanaka, 2021. "Mathematical Model of MMT with Profit Return under Monopolistic Competition," Journal of Social Science Studies, Macrothink Institute, vol. 8(2), pages 1-65, December.
    4. Tanaka, Yasuhito, 2022. "Budget deficit in a growing monetary economy: ver. 2," MPRA Paper 115631, University Library of Munich, Germany.
    5. Tanaka Yasuhito, 2020. "Microeconomic Foundation of the Phillips Curve," Studia Universitatis Babeș-Bolyai Oeconomica, Sciendo, vol. 65(3), pages 14-26, December.
    6. Tanaka Yasuhito, 2020. "A Keynesian Approach to Fiscal Policy for Full Employment and Continuous Time Debt Dynamics," Studia Universitatis Babeș-Bolyai Oeconomica, Sciendo, vol. 65(1), pages 20-38, April.
    7. Tanaka, Yasuhito, 2021. "Mmt（現代貨幣理論）の理論的根拠について -Mmtの数理モデルを目指して- [On the theoretical basis for MMT (Modern Monetary Theory) -Toward a mathematical model of MMT-]," MPRA Paper 107223, University Library of Munich, Germany.
    8. Tanaka, Yasuhito, 2020. "Divisibility and indivisibility of labor supply, and involuntary unemployment: A perfect competition model," MPRA Paper 98405, University Library of Munich, Germany.
    9. Tanaka Yasuhito, 2021. "Microeconomic Foundation for Phillips Curve with a Three-Period Overlapping Generations Model and Negative Real Balance Effect," Central European Economic Journal, Sciendo, vol. 8(55), pages 163-175, January.
    10. Tanaka, Yasuhito, 2021. "完全雇用実現のための財政政策について： 世代重複モデルによる理論的分析 [On the fiscal policy for full employment: Theoretical analysis with an overlapping generations model]," MPRA Paper 106546, University Library of Munich, Germany.
    11. Tanaka, Yasuhito, 2020. "Fiscal policy under involuntary unemployment," MPRA Paper 102507, University Library of Munich, Germany.
    12. Tanaka, Yasuhito, 2021. "Mmtの数理モデルについて [A mathematical model of MMT]," MPRA Paper 108425, University Library of Munich, Germany.
    13. Tanaka, Yasuhito, 2021. "Technical progress and involuntary unemployment under deflation with real balance effect and fiscal policy for full-employment," MPRA Paper 106714, University Library of Munich, Germany.
    14. Yasuhito Tanaka, 2022. "Debt to GDP Ratio from the Perspective of MMT," Business Management and Strategy, Macrothink Institute, vol. 13(1), pages 1-12, June.
    15. Yasuhito Tanaka, 2020. "Involuntary unemployment in overlapping generations model due to instability of the economy," Papers 2012.12199, arXiv.org.
    16. Tanaka, Yasuhito, 2020. "Positive or negative real balance effects, involuntary unemployment, three-generations overlapping generations model," MPRA Paper 104333, University Library of Munich, Germany.
    17. Tanaka, Yasuhito, 2021. "A game-theoretic analysis of fiscal policy under economic growth from the perspective of MMT," MPRA Paper 107402, University Library of Munich, Germany.
    18. Tanaka, Yasuhito, 2019. "Involuntary unemployment under indivisible labor supply: Perfect competition case," MPRA Paper 97832, University Library of Munich, Germany.
    19. Yasuhito Tanaka, 2022. "Involuntary Unemployment Due to Instability of the Economy and Fiscal Policy for Full-Employment," Research in Business and Management, Macrothink Institute, vol. 9(1), pages 1-20, December.
    20. Tanaka Yasuhito, 2020. "Involuntary Unemployment in a Neoclassical Model," Studia Universitatis Babeș-Bolyai Oeconomica, Sciendo, vol. 65(2), pages 12-28, August.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bba:j00004:v:2:y:2023:i:2:p:40-51:d:91. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Ramona Wang (email available below). General contact details of provider: https://www.anserpress.org .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.