Economics, Econometrics and Finance
3 years ago

Quantitative easing lowers government debt risk and future tax increases.

SSRN Electronic Journal
Can Monetary Policy Create Fiscal Capacity?
Vadim Elenev, Tim Landvoigt, Patrick Shultz, Stijn Van Nieuwerburgh

Paper Summary

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Governments have taken on a lot of debt due to recent crises. The question is how to pay it back. By using strategies like quantitative easing, the debt-to-GDP ratio can be lowered, reducing the risk of future tax increases. However, permanent quantitative easing can hurt long-term economic growth by crowding out investment.