Finance and Economics Discussion Series (FEDS)
February 1998
Government Debt
Douglas W. Elmendorf and N. Gregory Mankiw
Abstract:
This paper surveys the literature on the macroeconomic effects of government debt. It begins by discussing the data on debt and deficits, including the historical time series, measurement issues, and projections of future fiscal policy. The paper then presents the conventional theory of government debt, which emphasizes aggregate demand in the short run and crowding out in the long run. It next examines the theoretical and empirical debate over the theory of debt neutrality called Ricardian equivalence. Finally, the paper considers the various normative perspectives about how the government should use its ability to borrow.
Full paper (351 KB Postscript)Keywords: Government debt, Ricardian equivalence
PDF: Full Paper
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