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Is a Very High Public Debt a Problem?

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  • Pedro Leao

Abstract

This paper has two main objectives. The first is to propose a policy architecture that can prevent a very high public debt from resulting in a high tax burden, a government default, or inflation. The second objective is to show that government deficits do not face a financing problem. After these deficits are initially financed through the net creation of base money, the private sector necessarily realizes savings, in the form of either government bond purchases or, if a default is feared, "acquisitions" of new money.

Suggested Citation

  • Pedro Leao, 2015. "Is a Very High Public Debt a Problem?," Economics Working Paper Archive wp_843, Levy Economics Institute.
    • Handle: RePEc:lev:wrkpap:wp_843
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    File URL: http://www.levyinstitute.org/pubs/wp_843.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    Fiscal Policy; Functional Finance; Modern Monetary Theory; Monetary Policy; Public Debt Sustainability; Zero Interest Rates;
    All these keywords.

    JEL classification:

    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy

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