The Future of Public Debt: Prospects and Implications

26 Pages Posted: 5 May 2010

See all articles by Stephen G. Cecchetti

Stephen G. Cecchetti

Brandeis International Business School; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Madhusudan S. Mohanty

Bank for International Settlements (BIS) - Monetary and Economic Department

Fabrizio Zampolli

Bank for International Settlements (BIS) - Monetary and Economic Department

Date Written: March 1, 2010

Abstract

Since the start of the financial crisis, industrial country public debt levels have increased dramatically. And they are set to continue rising for the foreseeable future. A number of countries face the prospect of large and rising future costs related to the ageing of their populations. In this paper, we examine what current fiscal policy and expected future age-related spending imply for the path of debt/GDP ratios over the next several decades. Our projections of public debt ratios lead us to conclude that the path pursued by fiscal authorities in a number of industrial countries is unsustainable. Drastic measures are necessary to check the rapid growth of current and future liabilities of governments and reduce their adverse consequences for long-term growth and monetary stability.

Keywords: public debt, fiscal deficit, age-related spending, inflation, interest rates, default risk

JEL Classification: H5, H6, E6

Suggested Citation

Cecchetti, Stephen G. and Mohanty, Madhusudan S. and Zampolli, Fabrizio, The Future of Public Debt: Prospects and Implications (March 1, 2010). BIS Working Paper No. 300. Available at SSRN: https://ssrn.com/abstract=1599421 or http://dx.doi.org/10.2139/ssrn.1599421

Stephen G. Cecchetti (Contact Author)

Brandeis International Business School ( email )

415 South Street
Waltham, MA 02453
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States
212-720-8629 (Phone)
212-720-2630 (Fax)

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Madhusudan S. Mohanty

Bank for International Settlements (BIS) - Monetary and Economic Department ( email )

Centralbahnplatz 2
CH-4002 Basel
Switzerland

Fabrizio Zampolli

Bank for International Settlements (BIS) - Monetary and Economic Department ( email )

Centralbahnplatz 2
CH-4002 Basel
Switzerland

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