Are Large Deficits and Debt Dangerous?
AbstractThe traditional view of large deficits and debt is that they are harmful, save in recession/early recovery, for tax smoothing or to fund productive public investment, as they crowd out private investment and lower future income, and taken to extremes, can cause inflation, even a financial crisis. Blanchard (2019) concludes they may have no fiscal cost and increase welfare. I present evidence of a debt problem, policies necessary to contain it, effects on recovery, interest rates, and long-run growth. There are several serious issues with Blanchard's reading of key data and modeling assumptions, the changing of which would reverse his conclusions.
CitationBoskin, Michael J. 2020. "Are Large Deficits and Debt Dangerous?" AEA Papers and Proceedings, 110: 145-48. DOI: 10.1257/pandp.20201103
- E23 Macroeconomics: Production
- E32 Business Fluctuations; Cycles
- E43 Interest Rates: Determination, Term Structure, and Effects
- E62 Fiscal Policy
- H54 National Government Expenditures and Related Policies: Infrastructures; Other Public Investment and Capital Stock
- H62 National Deficit; Surplus
- H63 National Debt; Debt Management; Sovereign Debt