Should we be Austere? A Normative look at Public Debt

Jafri, Juvaria (2014): Should we be Austere? A Normative look at Public Debt.

Abstract

Excessive debt accumulation is an important policy concern in both developing and advanced economies because it is associated with various issues, particularly low growth and high inflation. This is apparent from the deleveraging vs. deficit spending debate; in this, the focus has tended to be on two specific outcomes, that is, on economic growth, and inflation. So, this debate often overlooks the repercussions of debt on economic freedom. Economic freedom may be regarded not just as a means to macroeconomic growth and stability, but also as in end in itself. It tends to be inhibited when the full consequences of rising public debt, whether from external or domestic sources, are misunderstood, particularly when the underlying basis for debt accumulation is neither stimulus nor smoothing.

• Item Type: MPRA Paper
• Language: English
• Keywords: public debt, economic freedom, odious debt
• Subjects: B - History of Economic Thought, Methodology, and Heterodox Approaches > B5 - Current Heterodox Approaches; B - History of Economic Thought, Methodology, and Heterodox Approaches > B5 - Current Heterodox Approaches > B53 - Austrian; H - Public Economics > H3 - Fiscal Policies and Behavior of Economic Agents; H - Public Economics > H3 - Fiscal Policies and Behavior of Economic Agents > H30 - General; H - Public Economics > H5 - National Government Expenditures and Related Policies; H - Public Economics > H6 - National Budget, Deficit, and Debt; H - Public Economics > H6 - National Budget, Deficit, and Debt > H62 - Deficit ; Surplus; H - Public Economics > H6 - National Budget, Deficit, and Debt > H63 - Debt ; Debt Management ; Sovereign Debt

References

Alesina, A., & Tabellini, G. (1990). A positive theory of fiscal deficits and government debt. The Review of Economic Studies, 57(3), 403-414

Alesina, A., & Tabellini, G. (1992). Positive and normative theories of public debt and inflation in historical perspective. European Economic Review, 36(2), 337-344.

Bavetta, S. (2004). Economic Freedom and Its Measurement. In The Encyclopedia of Public Choice (pp. 485-487). Springer US.

Bengoa, M., & Sanchez-Robles, B. (2003). Foreign direct investment, economic freedom and growth: new evidence from Latin America. European journal of political economy, 19(3), 529-545.

Buchanan, J. M. (1987). The constitution of economic policy. The American economic review, 243-250

Calmfors, L. (2011). Institute for International Economic Studies Seminar paper No. 767 The Role Of Independent Fiscal Policy Institutions. Institute for International Economic Studies.

Colander, D. (1984). Was Keynes a Keynesian or a Lernerian?. Journal of Economic Literature, 1572-1575

Davig, T., Leeper, E. M., & Walker, T. B. (2011). Inflation and the fiscal limit.European Economic Review, 55(1), 31-47.

De Haan, J., & Sturm, J. E. (2000). On the relationship between economic freedom and economic growth. European Journal of Political Economy, 16(2), 215-241

Doucouliagos, C., & Ulubasoglu, M. A. (2006). Economic freedom and economic growth: Does specification make a difference?. European Journal of Political Economy, 22(1), 60-81

Elmendorf, D. W., & Gregory Mankiw, N. (1999). Government debt. Handbook of macroeconomics, 1, 1615-1669.

Fletcher, Gordon (1989). The Keynesian Revolution and Its Critics: Issues of Theory and Policy for the Monetary Production Economy. Palgrave MacMillan.

Fiebiger, B., Fullwiler, S., Kelton, S., & Wray, L. R. (2012). Modern Monetary Theory: A Debate (No. wp279)

Ginsburg, T., & Ulen, T. S. (2007). Odious Debt, Odious Credit, Economic Development, and Democratization. Law and Contemporary Problems, 115-136

Guajardo, J., Leigh, D., & Pescatori, A. (2014). Expansionary Austerity? International Evidence. Journal of the European Economic Association

Gaus, Gerald and Courtland, Shane D., "Liberalism", The Stanford Encyclopedia of Philosophy (Spring 2011 Edition), Edward N. Zalta (ed.), Available at http://plato.stanford.edu/archives/spr2011/entries/liberalism/

Gwartney, J., & Lawson, R. (2003). The concept and measurement of economic freedom. European Journal of Political Economy, 19(3), 405-430

Jayachandran, S., & Kremer, M. (2006). Odious debt. The American economic review, 96(1), 82-92.

Keynes, J. M. (1961). General theory of employment, interest and money. MacMillan, London.

Leijonhufvud, A. (2009). No ordinary recession. VoxEU, February, 13.

Miller, T, Holmes, K. R., & Kim, A.B, (2013). The Index of Economic Freedom. Heritage Foundation.

Parguez, A. (2002). A Monetary Theory of Public Finance: The New Fiscal Orthodoxy: From Plummeting Deficits to Planned Fiscal Surpluses.International Journal of Political Economy, 32(3), 80-97

Plank, D. N. (1993). Aid, debt, and the end of sovereignty: Mozambique and its donors. The Journal of Modern African Studies, 31(03), 407-430.

Ray, R., Johnston, J., Cordero, J. A., & Montecino, J. A. (2009). IMF-supported macroeconomic policies and the world recession: a look at forty-one borrowing countries. Centre for Economic Policy Research.

Reinhart, C. M., & Rogoff, K. S. (2010). Growth in a Time of Debt (No. w15639). National Bureau of Economic Research

Reinhart, C. M., Reinhart, V. R., & Rogoff, K. S. (2012). Public debt overhangs: advanced-economy episodes since 1800. The Journal of Economic Perspectives, 26(3), 69-86

Reinhart, C. M., Kirkegaard, J. F., & Sbrancia, M. B. (2011). Financial Repression Redux. Finance & Development, 23(22).

Reisen, H. (1989). Public Debt, External Competitiveness, and Fiscal Discipline in Developing Countries (No. 66). International Economics Section, Department of Economics Princeton University.

Sargent, T. J., & Wallace, N. (1981). Some unpleasant monetarist arithmetic.Federal reserve bank of minneapolis quarterly review, 5(3), 1-17.

Seiferling, M. (2012). Essays on the political economy of public finance: taxation and debt (Doctoral dissertation, London School of Economics and Political Science).

Sen, A. K. (2009). The Idea of Justice. Harvard University Press.

Tomasi, J. (2001). Liberalism beyond justice: citizens, society, and the boundaries of political theory. Princeton University Press.

Vizard, P. (2001). Economic Theory, Freedom and Human Rights: The work of Amartya Sen. ODI Briefing Paper.

Wray, L. R. (2003). Monetary policy: An Institutionalist approach. In Institutional Analysis and Economic Policy (pp. 85-113). Springer US

Wray, L. R. (2003). 5. Seigniorage or Sovereignty? Modern Theories of Money: The Nature and Role of Money in Capitalist Economies, 84

Wray, L. R. (2009). An alternative view of finance, saving, deficits,and liquidity. Working paper, Levy Economics Institute, No. 580