Fiscal sustainability in the aftermath of the great pause |
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Institution: | Economics Department, Harvard University, Cambridge, MA 02140, USA |
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Abstract: | Faced with a global natural catastrophe, countries must spend to deal with the immediate crisis, and to reduce longer-term economic scarring. Sustained infrastructure and education spending can help counter headwinds to the long-term outlook. However, the fact that government borrowing rates are at extremely low levels does not imply that the very high debt, especially short-term borrowing, is a free lunch. Real borrowing rates are likely below long-term trend, and there is no guarantee that any future adverse shock can only lower interest rates. Massive underfunded old-age transfer and support programs are a form of hidden non-market “junior” debt. |
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Keywords: | Debt Interest rates Growth |
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