US Domestically Held Public Debt and Economic Growth

Lucile Sabas and Leroy Ruhupatty (Accounting, Economics and Finance)

US Domestically Held Public Debt and Economic Growth

The topic of public debt and its impact on economic growth is the subject of a lot of interest particularly in the context of high level of public debt worldwide, but specially in the US, Japan and some European countries. Why have these countries been trapped in this uncontrolled level of debt? What is the impact of debt on economic growth? What should be the optimum level of debt above which any increase become risky to a nation? Those questions are part of a series of questions included in the debates on the impact of exploding public debt that the nations are currently facing. The book written by Reinhart C. and K. Rogoff (2009)1 which is subject to a wide debate worldwide, presents the limit of the public debt up to 90% of GDP. This research will try to address several issues related to the impact of public debt on economic outcome. First, it will show the relationship between public debt and economic growth: Does government debt contribute to economic growth? Second, it will consider the alternatives means of financing fiscal policy, between a domestically incurred debt, an international incurred debt and other financing. Depending on the nature of a public debt and the repayment policy, a high public debt may not necessarily lead to economic slowdown, but to the opposite. Does the nature of the public debt matter in its impact on the economy? Will domestically incurred debt instead, lead to a positive outcome?

1Reinhart C. et K. Rogoff, 2009(a), This Time is Different: Eight Centuries of Financial Folly, Princeton University Press

 
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