TITLE

Public Debt Reduction in Advanced Countries and Its Impact on Emerging Countries

AUTHOR(S)
Farmer, Karl; Schelnast, Matthias
PUB. DATE
May 2013
SOURCE
International Advances in Economic Research;May2013, Vol. 19 Issue 2, p167
SOURCE TYPE
Academic Journal
DOC. TYPE
Article
ABSTRACT
Financial crises accompanied by banking crises often entail heavy fiscal legacies. For the U.S., for example, the gross government debt to GDP ratio exceeded 100 % in 2012. Due to the unsustainability of public debt, both in the U.S. and in other advanced countries, moves towards a substantial reduction in debt levels would appear to be unavoidable. However, as shown in this paper, the long-run welfare impact of debt reduction in advanced countries, both at home and abroad, may prove to be somewhat of a disincentive for policy makers. In particular, we find that under conditions of dynamic inefficiency, and when Home (U.S.) has a negative external balance and a lower capital production share than Foreign (China), both domestic and foreign welfare decrease if Home reduces public debt.
ACCESSION #
87910468

 

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