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Sustainability of public debt: Some theoretical considerations

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  • Alfred Greiner

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    (Bielefeld University , 33501 Bielefeld, Germany)

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    Abstract

    This paper elaborates on the relationship between sustainability of public debt and the debt to GDP ratio in case the interest rate on public debt exceeds the growth rate of GDP. When the primary surplus relative to GDP positively reacts to a higher debt to GDP ratio, a bounded debt to GDP ratio guarantees sustainability. Further, an unbounded debt to GDP ratio is not compatible with sustainability, even if the primary surplus relative to GDP strictly rises as the debt to GDP ratio increases. Finally, sustainability is excluded if the initial debt to GDP ratio exceeds a critical threshold.

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    File URL: http://www.accessecon.com/Pubs/EB/2011/Volume31/EB-11-V31-I4-P302.pdf
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    Bibliographic Info

    Article provided by AccessEcon in its journal Economics Bulletin.

    Volume (Year): 31 (2011)
    Issue (Month): 4 ()
    Pages: 3311-3319

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    Handle: RePEc:ebl:ecbull:eb-11-00753

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    Related research

    Keywords: Public Debt; Primary Surplus; Inter-temporal Budget Constraint; Sustainability;

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    1. Antonio Afonso, 2004. "Fiscal Sustainability: the Unpleasant European Case," Money Macro and Finance (MMF) Research Group Conference 2004 57, Money Macro and Finance Research Group.
    2. António Afonso, 2005. "Ricardian Fiscal Regimes in the European Union," Working Papers Department of Economics 2005/18, ISEG - School of Economics and Management, Department of Economics, University of Lisbon.
    3. Olivier Jean Blanchard & Stanley Fischer, 1989. "Lectures on Macroeconomics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262022834, December.
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    Cited by:
    1. Niklas Potrafke & Markus Reischmann, 2012. "Fiscal Equalization Schemes and Fiscal Sustainability," CESifo Working Paper Series 3948, CESifo Group Munich.
    2. Greiner Alfred, 2013. "How to test for debt sustainability? Some theoretical reflections on an empirical test," Economics Bulletin, AccessEcon, vol. 33(3), pages 2357-2364.
    3. Greiner, Alfred, 2012. "Public debt in a basic endogenous growth model," Economic Modelling, Elsevier, vol. 29(4), pages 1344-1348.

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