Beyond the Austerity Debate: the Deficit Bias in the post-Bretton Woods Era

2017-04-15T14:07:42-04:00May 21, 2012|

The growth versus austerity debate is detracting attention from policy issues that may seem less urgent, but which are nevertheless critical in the medium term. I am referring to what I would call the institutional gaps in fiscal policymaking that still exist in most advanced and emerging economies. These gaps have contributed to a bias in the conduct of fiscal policy in favor of deficits that is behind many of the current problems.

Making Goldilocks Happy

2017-04-15T14:10:21-04:00April 20, 2012|

We have calculated that an increase in annual long-term economic growth of just a quarter of a percentage point could set in place a virtuous circle that would lead, after ten years, to a decline in the public debt-to-GDP ratio by 6 percentage points. This is because higher growth makes it easier to run a primary surplus and lowers the public debt-to-GDP ratio directly. This in turn lowers the interest rate, which in turn boosts economic growth.
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