After the 2007-2009 global financial crisis, fears of ballooning public debt and worries about the drag on economic growth pushed authorities in some countries to lower government spending, a tactic that economists now think may have slowed recovery. Note that in the United States the total debt to GDP ratio stood at 349 in Q1 this year.
In a paper presented at the Kansas City Federal Reserve’s annual economic symposium on August 26 2017, Alan Auerbach and Yuriy Gorodnichenko from the University of California suggested that ‘expansionary fiscal policies adopted when the economy is weak may not only stimulate output but also reduce debt-to-GDP ratios’. (Fiscal Stimulus and Fiscal Sustainability, August 1,2017, UC – Berkley and NBER).
This post was published at Ludwig von Mises Institute on August 4, 2017.