A note on the policy implications of the fiscal multiplier

2013/10/11 by Evangelos F. Magirou, Magirou, Evangelos F.
Economics, Econometrics and Finance · #91B62 #FOS: Economics and business #General Finance (q-fin.GN) #msc:91B62 #q-fin.GN

paper · pdf · doi:10.48550/arxiv.1310.3083

arxiv created 2013/10/11 · arxiv updated 2013/10/14

Abstract

We present an elementary analysis of the dynamical aspects of the GDP / government surplus multiplier with relevance to the assessment of a country's debt repayment policy. We show the (at first) counter intuitive result that in order to reduce the Debt/GDP ratio, countries with high Debt to GDP should go into further debt, as long as the Debt to GDP ratio is roughly greater than the inverse of the multiplier. Thus small values of the multiplier make further debt undesirable, and conversely.

Related

• Do Governments React to Public Debt Accumulation? A Cross-Country Analysis
• Government spending, multipliers, and public debt sustainability: an empirical assessment for OECD countries
• The permanent effects of fiscal consolidations
• Explicit Solution to a government debt reduction problem: a stochastic control approach
• Government Solvency, Austerity and Fiscal Consolidation in the OECD: A Keynesian Appraisal of Transversality and No Ponzi Game Conditions