Abstract
Public Debt Dynamics and Fiscal Sustainability in Namibia: An Intertemporal Budget Constraint Analysis
Highlights
The Great Recession ended more than eight years ago, making the current expansion long by historical standards
To what extent does the increase in public debt limit the “fiscal space” available to fight recession? Do high debt-to-GDP ratios limit the strength of fiscal multipliers (e.g., Perotti, 1999), or alternatively can expansionary policy improve the fiscal picture and reduce debt-to-GDP ratios, especially when interest rates are low (DeLong and Summers, 2016)? Should high-debt countries consider fiscal consolidation, even during a period of economic weakness (Alesina et al 2015)? And how is the scope for fiscal policy altered by the large implicit liabilities from unfunded pension and health care programs in the United States and other economies with rapidly aging populations?
4 In our analysis, we focus on government spending shocks and omit tax shocks because identification of exogenous, unanticipated shocks to taxes has much higher data requirements
Summary
The Great Recession ended more than eight years ago, making the current expansion long by historical standards. The prolonged recession and the countercyclical fiscal measures adopted to address it have left the United States and other leading economies with substantial increases in public debt (see Figure 1) These elevated debt levels raise several important questions about the conduct of fiscal policy. In contrast to the sample in our study (effectively, large OECD economies), the Born et al sample covers 38 countries including such emerging economies as Argentina and South Africa Another important difference across the studies is that we use the debt-to-GDP ratio as a measure of state (fiscal sustainability) while Born et al (2017) use the default premium as the state variable (fiscal stress).
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