Fiscal Policy and Public Debt Public
Debt dynamics and the r minus g arithmetic, sustainability tests, fiscal multipliers, optimal debt, monetary-fiscal interaction and the fiscal theory of the price level, the euro-area crisis, fiscal rules including the Swiss debt brake, and the decade after 2020. Eight lessons with flashcards and references.
Lessons in order
Start reading →-
13 min Public
The government budget constraint and debt dynamics
How the debt ratio moves with the primary balance, the interest rate and growth; the r minus g arithmetic that organises every fiscal debate.
-
24 min Public
Is public debt sustainable?
Fiscal reaction functions and Bohn's test, the r-less-than-g argument of Blanchard, the 90 percent threshold and its spreadsheet, and why the answer depends on the interest rate the market has not yet set.
-
33 min Public
Fiscal multipliers
What one unit of government spending does to output in the textbook, in New Keynesian models at the lower bound, and in the data from wars, forecast errors and US states.
-
44 min Public
Tax smoothing and the optimal level of debt
Barro's case for deficits in wars and recessions, the Lucas-Stokey view of debt as insurance, and Aiyagari and McGrattan's estimate of how much debt a precautionary economy wants.
-
54 min Public
Monetary and fiscal interaction
Unpleasant monetarist arithmetic, Leeper's active and passive regimes, the fiscal theory of the price level, and the fiscal reading of the 2021 inflation.
-
63 min Public
Sovereign debt and the euro area
Why a country that borrows in a currency it does not control can face a self-fulfilling run, the doom loop between banks and sovereigns, and what "whatever it takes" changed.
-
74 min Public
Fiscal rules and the Swiss debt brake
Why governments tie their own hands, how the Swiss debt brake works and what it has done since 2003, and the 2024 reform of the European rules.
-
84 min Public
Fiscal policy after 2020
The pandemic packages, the inflation that followed, interest bills rising on high debt, and the questions the decade leaves open for r minus g, rules and central bank independence.