Public Debt Sustainability and Alternative Theories of Interest

Abstract:     
This paper reappraises sustainable trajectories of public debt and fiscal balance, with particular reference to the possible relations between the interest rate on debt and the growth rate of the economy. From the standpoint of the approach to the theory of interest proposed by Keynes-and, in a certain sense, also by Sraffa-the analysis opens up the possibility of sustaining permanent primary budget deficits. However, the extent to which this standpoint enables one to revise the spectrum of feasible empirical magnitudes for sustainable fiscal balances appears rather modest.

Keywords: Sustainable fiscal balance, Keynes, Sraffa

JEL Classification: E43, E58, E63, H63

Accepted Paper Series