A bit of Keynesian debt-to-GDP arithmetic for deficit-capped countries


This paper expands some recent Keynesian debt-to-GDP arithmetic exercises in three respects. Firstly, it analyses the output and capacity losses associated with a ‘balanced budget’ fiscal policy. Secondly, the possible Keynesian features of a policy looking at the difference between the growth rate and the interest rate are also discussed, showing a condition which allows for a debt-to-GDP ratio reduction via primary deficit spending. Lastly, the minimum necessary fiscal multiplier values needed to make austerity policy counterproductive are calculated for the PIGS economies covering the 1998 – 2018 period. The results show the substantial case for the Keynesian arithmetic to hold.

Volume :- No.13 (2019)

Issue No :- 1 (2019)

Pages :- 55-83

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