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Sustainability of public debt: Some theoretical considerations

Author

Listed:
  • Alfred Greiner

    () (Bielefeld University , 33501 Bielefeld, Germany)

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.

Suggested Citation

  • Alfred Greiner, 2011. "Sustainability of public debt: Some theoretical considerations," Economics Bulletin, AccessEcon, vol. 31(4), pages 3311-3319.
  • Handle: RePEc:ebl:ecbull:eb-11-00753
    as

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    File URL: http://www.accessecon.com/Pubs/EB/2011/Volume31/EB-11-V31-I4-P302.pdf
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    References listed on IDEAS

    as
    1. António Afonso, 2005. "Fiscal Sustainability: The Unpleasant European Case," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, pages 1-19.
    2. Dreger, Christian & Wolters, Jürgen, 2009. "Money Velocity and Asset Prices in the Euro Area," EconStor Open Access Articles, ZBW - German National Library of Economics, pages 51-63.
    3. Afonso, António, 2005. "Ricardian fiscal regimes in the European Union," Working Paper Series 558, European Central Bank.
    4. Olivier Jean Blanchard & Stanley Fischer, 1989. "Lectures on Macroeconomics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262022834, January.
    5. António Afonso, 2008. "Ricardian fiscal regimes in the European Union," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, pages 313-334.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. 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.
    2. Greiner, Alfred, 2012. "Public debt in a basic endogenous growth model," Economic Modelling, Elsevier, vol. 29(4), pages 1344-1348.
    3. Niklas Potrafke & Markus Reischmann, 2012. "Fiscal Equalization Schemes and Fiscal Sustainability," ifo Working Paper Series 141, ifo Institute - Leibniz Institute for Economic Research at the University of Munich.

    More about this item

    Keywords

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

    JEL classification:

    • H6 - Public Economics - - National Budget, Deficit, and Debt
    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook

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