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The future of public debt: prospects and implications

Author Info

  • Stephen Cecchetti
  • Madhusudan Mohanty
  • Fabrizio Zampolli

Abstract

Since the start of the financial crisis, industrial country public debt levels have increased dramatically. And they are set to continue rising for the foreseeable future. A number of countries face the prospect of large and rising future costs related to the ageing of their populations. In this paper, we examine what current fiscal policy and expected future age-related spending imply for the path of debt/GDP ratios over the next several decades. Our projections of public debt ratios lead us to conclude that the path pursued by fiscal authorities in a number of industrial countries is unsustainable. Drastic measures are necessary to check the rapid growth of current and future liabilities of governments and reduce their adverse consequences for long-term growth and monetary stability.

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Paper provided by Bank for International Settlements in its series BIS Working Papers with number 300.

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Length: 26 pages
Date of creation: Mar 2010
Date of revision:
Handle: RePEc:bis:biswps:300
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Keywords: public debt; fiscal deficit; age-related spending; inflation; interest rates; default risk;

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  1. Thomas Sargent & Joseph Zeira, 2011. "Israel 1983: A bout of unpleasant monetarist arithmetic?," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 14(3), pages 419-431, July.
  2. Leeper, Eric M., 1991. "Equilibria under 'active' and 'passive' monetary and fiscal policies," Journal of Monetary Economics, Elsevier, vol. 27(1), pages 129-147, February.
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  4. Reinhart, Carmen M. & Rogoff, Kenneth S., 2010. "Growth in a Time of Debt," Scholarly Articles 11129154, Harvard University Department of Economics.
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  8. Carmen M. Reinhart & Kenneth S. Rogoff, 2008. "This Time is Different: A Panoramic View of Eight Centuries of Financial Crises," NBER Working Papers 13882, National Bureau of Economic Research, Inc.
  9. Willem H. Buiter, 2002. "The Fiscal Theory Of The Price Level: A Critique," Economic Journal, Royal Economic Society, vol. 112(481), pages 459-480, July.
  10. John H. Cochrane, 1999. "A Frictionless View of U.S. Inflation," NBER Chapters, in: NBER Macroeconomics Annual 1998, volume 13, pages 323-421 National Bureau of Economic Research, Inc.
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  12. Reinhart, Carmen M. & Rogoff, Kenneth, 2009. "Banking Crises: An Equal Opportunity Menace," CEPR Discussion Papers 7131, C.E.P.R. Discussion Papers.
  13. Thomas J. Sargent & Neil Wallace, 1981. "Some unpleasant monetarist arithmetic," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Fall.
  14. Jan J.G. Lemmen & Charles A.E. Goodhart, 1999. "Credit Risks and European Government Bond Markets: A Panel Data Econometric Analysis," Eastern Economic Journal, Eastern Economic Association, vol. 25(1), pages 77-107, Winter.
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Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Verschuldung und Demographie: Wann werden Staatsanleihen toxisch?
    by admin in BATZ.ch on 2010-05-15 09:51:30
  2. Le vieillissement de la population et l'explosion future des dettes publiques
    by contact@captaineconomics.fr (Le Captain') in Captain Economics on 2012-09-18 14:14:12
  3. Dépendance et vieillissement: la dette de la France pourrait atteindre 400% du PIB !
    by trenault@economiematin.fr (Captain Economics) in Economie Matin on 2012-09-19 10:29:52
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