Economics, Econometrics and Finance
8 years ago

Government spending can reduce debt-to-GDP ratio, challenging conventional wisdom.

Metroeconomica
The Effect of Government Spending on the Debt‐to‐<scp>GDP</scp> Ratio: Some <scp>K</scp>eynesian Arithmetic
Pedro Leão

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Government spending can actually reduce the debt-to-GDP ratio when the economy is not at full employment. This challenges the idea that countries need to cut spending to lower their debt levels. With interest rates low, increasing government spending can help fight unemployment without harming public finances.