A Theory of Public Debt Overhang
In this paper we analyze the effects of unsustainable public debt on technology choice and economic growth. Unsustainable public debt undermines the credibility of government policy because the government will do whatever necessary to postpone fiscal consolidation, as an incumbent government inevitably falls from power upon implementing fiscal consolidation. We show that the lack of commitment makes firms’ choice of technology inefficient. Fiscal consolidation can restore credibility and high growth in the baseline model, while with a different policy setting in the modified model fiscal consolidation may not be able to restore redibility and growth if it is implemented too late.
|Date of creation:||Feb 2013|
|Contact details of provider:|| Postal: 2-1 Naka, Kunitachi City, Tokyo 186-8603|
Web page: http://cis.ier.hit-u.ac.jp/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Michael Brauninger, 2005. "The Budget Deficit, Public Debt, and Endogenous Growth," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 7(5), pages 827-840, December.
- Carmen M. Reinhart & Vincent R. Reinhart & Kenneth S. Rogoff, 2012.
"Debt Overhangs: Past and Present,"
NBER Working Papers
18015, National Bureau of Economic Research, Inc.
- Carmen M. Reinhart & Vincent R. Reinhart & Kenneth S. Rogoff, 2012. "Public Debt Overhangs: Advanced-Economy Episodes since 1800," Journal of Economic Perspectives, American Economic Association, vol. 26(3), pages 69-86, Summer.
- Timothy J. Kehoe & Edward C. Prescott(), 2007.
"Great depressions of the twentieth century,"
Federal Reserve Bank of Minneapolis, number 2007gdott.
- Reinhart, Carmen M. & Rogoff, Kenneth S., 2010.
"Growth in a Time of Debt,"
11129154, Harvard University Department of Economics.
- Koichi Futagami & Takeo Hori & Ryoji Ohdoi, 2010.
"Debt Policy and Economic Growth in a Small Open Economy Model with Productive Government Spending,"
Macroeconomics Working Papers
21875, East Asian Bureau of Economic Research.
- Futagami, Koichi & Hori, Takeo & Ohdoi, Ryoji, 2010. "Debt Policy and Economic Growth in a Small Open Economy Model with Productive Government Spending," ADBI Working Papers 212, Asian Development Bank Institute.
- Koichi Futagami & Takeo Hori & Ryoji Ohdoi, 2010. "Debt Policy and Economic Growth in a Small Open Economy Model with Productive Government Spending," Working Papers id:2502, eSocialSciences.
- Baum, Anja & Checherita-Westphal, Cristina & Rother, Philipp, 2012.
"Debt and growth: new evidence for the euro area,"
Working Paper Series
1450, European Central Bank.
- Gilles Saint-Paul, 1992. "Fiscal Policy in an Endogenous Growth Model," The Quarterly Journal of Economics, Oxford University Press, vol. 107(4), pages 1243-1259.
- Stanley Fischer, 1991. "Growth, Macroeconomics, and Development," NBER Working Papers 3702, National Bureau of Economic Research, Inc.
- Real Arai & Takuma Kunieda & Keigo Nishida, 2014. "Is Public Debt Growth-Enhancing or Growth-Reducing?," KIER Working Papers 884, Kyoto University, Institute of Economic Research.
- Timothy Kehoe & Edward Prescott, 2002.
"Data Appendix to Great Depressions of the Twentieth Century,"
kehoe02, Review of Economic Dynamics.
- Checherita-Westphal, Cristina & Rother, Philipp, 2012. "The impact of high government debt on economic growth and its channels: An empirical investigation for the euro area," European Economic Review, Elsevier, vol. 56(7), pages 1392-1405.
- Acemoglu,Daron & Robinson,James A., 2009.
"Economic Origins of Dictatorship and Democracy,"
Cambridge University Press, number 9780521671422, October.
- Roberto Perotti, 1999. "Fiscal Policy in Good Times and Bad," The Quarterly Journal of Economics, Oxford University Press, vol. 114(4), pages 1399-1436.
- Robert J. Barro & Rachel McCleary, 2003. "Religion and Economic Growth," NBER Working Papers 9682, National Bureau of Economic Research, Inc.
- Stanley Fischer, 1991. "Growth, Macroeconomics, and Development," NBER Chapters, in: NBER Macroeconomics Annual 1991, Volume 6, pages 329-379 National Bureau of Economic Research, Inc.
- Robert J. Barro & Xavier Sala-i-Martin, 2003. "Economic Growth, 2nd Edition," MIT Press Books, The MIT Press, edition 2, volume 1, number 0262025531.
- Fischer, S., 1991. "Growth, Macroeconomics, and Development," Working papers 580, Massachusetts Institute of Technology (MIT), Department of Economics.
When requesting a correction, please mention this item's handle: RePEc:hit:cisdps:589. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Digital Resources Section, Hitotsubashi University Library)
If references are entirely missing, you can add them using this form.