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Effect on potential growth of non-sustainable public debt dynamics: an application to France

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  • Frédéric Gonand

    (CECO - Laboratoire d'économétrie de l'École polytechnique - X - École polytechnique - IP Paris - Institut Polytechnique de Paris - CNRS - Centre National de la Recherche Scientifique)

Abstract

This paper assesses the impact on potential growth up to 2020 of possible future budget deficit dynamics in France, with new ageing-related expenditures financed exclusively by debt. The methodology calibrates a standard analytical model with production function and proportional taxes using national accounts. It documents the intuition according to which debt-building significantly crowds out productive capital accumulation. Simulations suggest that a crowding-out adjusted (public debt/GDP) ratio should keep increasing significantly, reaching 97% in 2020 at unchanged policies. It would stabilize around 60% only if sizeable primary surpluses (excluding new ageing-related expenditures) of 1.25% GDP were achieved on average. Yet the detrimental impact on potential growth of loose budget policies combined with new ageing-related expenditures financed only by debt would remain limited: around -0.1% GDP per year on average

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  • Frédéric Gonand, 2005. "Effect on potential growth of non-sustainable public debt dynamics: an application to France," Working Papers hal-00242973, HAL.
    • Handle: RePEc:hal:wpaper:hal-00242973
    Note: View the original document on HAL open archive server: https://hal.science/hal-00242973
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    References listed on IDEAS

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    1. Elmendorf, Douglas W. & Gregory Mankiw, N., 1999. "Government debt," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 25, pages 1615-1669, Elsevier.
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    Cited by:

    1. Frédéric Gonand, 2006. "Une politique budgétaire keynésienne neutralisant les stabilisateurs automatiques en haut de cycle : le cas de la France en 2000-2001," Working Papers hal-00243038, HAL.

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