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Sustainability of public debt: Some theoretical considerations

  • Alfred Greiner

    ()

    (Bielefeld University , 33501 Bielefeld, Germany)

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    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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    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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    1. António Afonso, 2005. "Fiscal Sustainability: The Unpleasant European Case," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 61(1), pages 19-, March.
    2. Olivier Jean Blanchard & Stanley Fischer, 1989. "Lectures on Macroeconomics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262022834, June.
    3. Afonso, António, 2005. "Ricardian fiscal regimes in the European Union," Working Paper Series 0558, European Central Bank.
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