Tuesday, November 2, 2010

The Rise of Public Debt

Public debt levels keep rising throughout the world, but especially so in advanced economies: Brookings Institution’s Eswar Prasad and Mengjie Ding present the evidence and projections for 2015 in an article published today on the Brookings website.

They claim that “the public debt burden may ultimately fall on the working-age population rather than the entire population”, but that conclusion is much disputed on theoretical grounds. It depends in particular on future tax, debt, and inflation policies as well as on future growth. While the implied transfers across generations are uncertain, it is true that “rising debt levels pose risks to fiscal and macroeconomic stability” beyond some critical debt/GDP ratio, that, however, is not known with any degree of acuracy.

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