Does the national debt matter

Bibliographic Data

ID6172346
AuthorsL Randall Wray (0000-0003-3113-0556, Levy Economics Institute of Bard College), Yeva Nersisyan (0000-0002-2034-843X, Franklin & Marshall College)
Year2020
Volume46
Issue4
Pages261-286
Publication date2020-10-01
Peer ReviewedYes
Open AccessNo
TypeARTICLE
VenueThe Japanese Political Economy (JOURNAL)
Journal identifiersISSN: 2329-1958 • E-ISSN: 2329-194X
PublisherTaylor & Francis (PUBLISHER • GB)
DOI10.1080/2329194x.2020.1867586
OpenAlexW3118739764
LanguageEN
Citations received4
References cited18

In this paper, we use the Modern Money Theory framework to analyze whether government debt (and deficits) in a country with its own sovereign currency presents a problem. We argue that permanent deficits and even a rising debt ratio are normal, especially in developed nations with current account deficits. In contrast to the conventional approach, which views deficits and debt as policy variables, we demonstrate that they are ex post outcomes which depend on economic performance. Further, in nations with sovereign currency, it is hard to imagine a scenario in which a rising deficit and the debt ratio would trigger an attack by bond vigilantes, lead to government insolvency, or generate high inflation or high interest rates. The claim that debt beyond a certain threshold impairs growth is also suspect since the observed empirical correlations are likely due to lower growth creating higher deficits. Lastly, we argue that deficit and debt ratios have no bearing on a nation's fiscal policy space, which depends on the real resources it can mobilize

Bond · Currency · Current account · Debt · Economics · Exchange rate · External debt · Government Debt · Inflation (cosmology · Interest rate · Internal debt · Macroeconomics · Monetary economics · Economic Theory and Policy · Fiscal Policies and Political Economy · Monetary Policy and Economic Impact · Finance

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