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Public Debt Dynamics and Sustainability: A Framework for Analysis

Author

Listed:
  • Waldo Mendoza

    (Departamento de Economía de la Pontificia Universidad Católica del Perú)

  • Marko Razzo

    (Departamento de Economía de la Pontificia Universidad Católica del Perú)

  • Rafael Vilca

    (Departamento de Economía de la Pontificia Universidad Católica del Perú)

Abstract

This paper presents a macro-fiscal model for examining the public sectorprimary surplus and the dynamics and sustainability of public debt in closedand open economies. The model simulates how changes in the primary surplusaffect public debt, highlighting key differences between these economiccontexts. Notably, open economies can finance fiscal deficits with foreigncurrency-denominated debt, introducing additional sources of instability inpublic debt dynamics. The analysis demonstrates how a permanent reduction inthe primary surplus undermines public debt sustainability, with outcomes shapedby economic conditions and the features of open and closed economies.Furthermore, it confirms that delays in implementing fiscal adjustmentsfollowing a destabilizing shock result in increasingly severe correctivemeasures over time. Palabras claves: Debt, Dynamic, Sustainability, Fiscal Adjustment JEL Classification-JE: E62, H62, H63

Suggested Citation

  • Waldo Mendoza & Marko Razzo & Rafael Vilca, 2024. "Public Debt Dynamics and Sustainability: A Framework for Analysis," Documentos de Trabajo / Working Papers 2024-541, Departamento de Economía - Pontificia Universidad Católica del Perú.
    • Handle: RePEc:pcp:pucwps:wp00541
    DOI: 10.18800/2079-8474.0541
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    Keywords

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    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt

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