Treatise on Public Debt

The paper traces the analysis of public debt from the end of the 17th to the 20th century

P. de Gijsel and H. Schenk, eds., Multidisciplinary Economics: the Birth of a New Economics Faculty in the Netherlands, Springer, the Netherlands, 2005, pp. 209-224. , 2005

This lecture reviews some of the key fiscal sustainability issues faced by developing countries and early emerging market economies. The key conclusions and recommendations include the following. •Fiscal sustainability should focus on the fiscal-financial-monetary programme of the sovereign (the state), that is, the consolidated general government and central bank. •It should include all present and future contingent claims owed and owned by the state. In addition to these contractual obligations, non-contractual current and future outlays and revenues must be accounted for exhaustively and comprehensively: nothing is off-budget or off-balance sheet. The special purpose vehicle veil must be torn away. •For countries with weak economic and political institutions, the safe level of the net public debt to GDP ratio is likely to be low. If there is a history of sovereign default, the safe level of public debt is likely to be even lower. Weak borrowers will have to generate primary surpluses earlier than more credit-worthy borrowers. •The attractions of hard currency borrowing during normal times are apt to turn into major disadvantages during periods of financial turmoil. •Privatisations should be undertaken primarily for efficiency reasons rather than for deficit financing or debt reduction reasons. •The permanent balance rule for government deficits, where the state raises its net debt to GDP ratio when spending (of any kind) is temporarily high and lowers it when spending is temporarily low, has much to recommend it .

The subject of this dissertation is the macroeconomic dynamics of public debt in the Philippines. The dissertation consists of three essays that can be read independently but may overlap with its exposition. The first essay, “Public Debt and Productive Government Capital in Pandemic Recovery”, develops a dynamic model of the economy with productive government capital. The essay investigates the effects of increasing public debt on the firm's marginal cost. Also, we look at alternative fiscal rules in response to increases in government spending. And how these rules may add linkage between firms' marginal cost to overall changes in the price level in the economy. The second essay, “Open Economy Consideration of Government Risk Premium”, proposes a small open economy model. The goal of the second essay is to understand the international risk contagion mechanism. The last essay, “Welfare Implication of Fiscal and Monetary Policy Interaction”, discusses the optimal response of monetary policy in the presence of rising sovereign risk premium shock.

The "Great Recession", as it is called by Professor Joseph Stiglitz, which began in 2008 caused one of the greatest economic crises in history. Millions of jobs have been lost world wide -20 millions alone in China. Fearing a depression, most governments in the world decided, in according to Keynesian tradition, to interfere into economics and by using different stimulus packages to stimulate their economies. Even the U.S., which advocated a liberal economic policy in the last 25 years, turned to using stimulus packages under Presidents George W. Bush and Barack Obama. However, keeping in mind that these stimulus packages are debt-financed, the goal of this working paper is to show the consequences of rising public debts on economic agents and the sovereignty of the state. As we already know, one of the major disadvantages of government intervention is increasing public debts.

The present paper treats the issue of economic foundations, on which political power rests, and the specific problem of public debt in the developed countries. Starting from the general question: "Why do rich governments borrow so much?" the paper develops a model of political power based on the possession of capital, and on the transformation of public possession into private property rights. Empirical investigation follows, in a sample of 21 countries, demonstrating that there is an objectively existing transfer of capital from public borrowing to private property rights; that transfer is connected mostly to the property of non--productive assets, and goes beyond the easily inferable relation to net exports. That the transfer from public borrowing to private property rights is strongly correlated with the relative dispersion or concentration of power in the political system. We are witnessing a progressive withdrawal of public finance and public borrowing as a means of transferring capital, with a simultaneously growing idiosyncrasy (cross--sectinal variance) of fiscality. Keywords: fiscal policy, public debt, political power, political systems, property rights, institutional economics, macroeconomics noticeable contribution from the part of James Buchanan (Buchanan 1976 13 ; Buchanan, Wagner 1977) 14 .

1992

This thesis consists of three self-contained papers covering different aspects of public debt management. From a methodological point of view they all have in common that results and models from the theory of finance are used to analyze the effects of public debt management. The first paper, Neutrality of Public Debt Management, studies the case when public debt management does not matter, i.e. when it is neutral. Although strong assumptions are needed to ensure neutrality of public debt management it is nevertheless of interest to study it, since an analysis illuminates the mechanisms through which public debt management affects the economy. The paper starts with a discussion of the assumptions that are needed to ensure neutrality in the models used in the literature. The remainder of the paper tries to relax some of these assumptions. The model employed is an intertemporal general equilibrium model. It is shown that if the agents are identical, public debt is neutral provided the ...

Handbook of Intergenerational Justice, 2006

Kyklos, 1992

The postwar litenture on public debt might aptly be described as a three-ring circus, for it contains three distinct lines of analysis and argumentation that reflect different methodological and theoretical presumptions. The fust ring was occupied in the 1940's by Keynesian economists. typified by ABBA LERNER [1948], who challenged the classical orthodoxy which treated public debt as acostly form of public finance that placed burdens on future generations. These Keynesian economists, in challenging the validity of the classical anal-1

1985

The equivalence between public sector deficit and private sector excess savings is demonstrated. Figures for the Nordic countries concerning public deficit, debt and interest rates are presented. The relationship between public deficit and public debt is discussed-stressing the importance of the size of the permanent deficit and of the real rate of interest. The conditions for a stable/unstable development in the debt/GDP ratio are set up. Here the relative size between real growth rate and real interest rate is crucial. The possibilities of increasing the growth rate respectively reducing the interest rate is discussed and the mutual interrelationship is underlined. The paper is concluded with a rather pessimistic view, looking at the OECD-area the deficit has been reduced by restrictive fiscal policies at the cost of growing unemployment. Real rates og interest stay high and far higher than the likely growth rate of the world economy. That creates an unstable situation calling for continuous reductions in public exoences or tax increases both damag ing the future economic performance.

International Review of Economics, 2007

Classical economists had developed advanced theories of public debt. These theories, however, have received less attention compared with those of value and distribution. Classical theories of national debt at best receive cursory consideration and are only used to offer further justification to modern theories. Smith's discussion of the unproductive role of the state and the Ricardian equivalence theorem are examples that are found routinely in the books of public finance or macroeconomics. As for the ideas of classical economists per se these are considered inappropriate for modern economies and are ignored even in books of history of economic thought. This paper takes issue with this view and argues that the ideas of classical economists on public debt might be more relevant nowadays than is commonly thought.