The paper briefly starts with a review of the author’s previous contributions on the sustainability of public debt. The author resumes a relation involving 3 magnitudes (deficit/GDP ratio, debt/GDP ratio, and rate of growth). He defines - algebraically and graphically - the boundary to the area of sustainability of public finance. He shows how the parameters given in the famous Annex to the Maastricht Treaty only represent one particular point on the boundary. Then he concentrates on the burden of public debt for the European community as a whole (in terms of extra taxation necessary to service the debt). He introduces the concept of an iso-social-burden curve, which represents all combinations of debt/GDP that entail the same social burden. He concludes that the usual way of aiming at decreasing the social burden, by cutting down public debt, is not the only way to pursue such an aim. Another, much neglected but very important, way is to decrease the difference between rate of interest and rate of growth. If such a difference were to be reduced to zero, the burden of public debt would also be reduced to zero, whatever the magnitude of the debt/GDP ratio.

Pasinetti, L. L., Public Debt in the European Countries: Two ways of Facing the Problem, in Krishnakumar, J., Ronchetti, E. (ed.), Panel Data Econometrics: Future Directions – Papers in Honour of Professor Pietro Balestra, Elsevier, Amsterdam 2000: 317- 328 [http://hdl.handle.net/10807/81609]

Public Debt in the European Countries: Two ways of Facing the Problem

Pasinetti, Luigi Lodovico
Primo
2000

Abstract

The paper briefly starts with a review of the author’s previous contributions on the sustainability of public debt. The author resumes a relation involving 3 magnitudes (deficit/GDP ratio, debt/GDP ratio, and rate of growth). He defines - algebraically and graphically - the boundary to the area of sustainability of public finance. He shows how the parameters given in the famous Annex to the Maastricht Treaty only represent one particular point on the boundary. Then he concentrates on the burden of public debt for the European community as a whole (in terms of extra taxation necessary to service the debt). He introduces the concept of an iso-social-burden curve, which represents all combinations of debt/GDP that entail the same social burden. He concludes that the usual way of aiming at decreasing the social burden, by cutting down public debt, is not the only way to pursue such an aim. Another, much neglected but very important, way is to decrease the difference between rate of interest and rate of growth. If such a difference were to be reduced to zero, the burden of public debt would also be reduced to zero, whatever the magnitude of the debt/GDP ratio.
Inglese
Panel Data Econometrics: Future Directions – Papers in Honour of Professor Pietro Balestra
0444502378
Elsevier
Pasinetti, L. L., Public Debt in the European Countries: Two ways of Facing the Problem, in Krishnakumar, J., Ronchetti, E. (ed.), Panel Data Econometrics: Future Directions – Papers in Honour of Professor Pietro Balestra, Elsevier, Amsterdam 2000: 317- 328 [http://hdl.handle.net/10807/81609]
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Utilizza questo identificativo per citare o creare un link a questo documento: http://hdl.handle.net/10807/81609
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