An Argument for Paying Down Public Debt

2019-03-26T16:20:47-04:00August 26, 2016|

By Vitor Gaspar and Julio Escolano

What should governments do about high public debt-to-GDP ratios?  This question is getting much-deserved attention. Let’s abstract from macroeconomic (business cycle) considerations and look at the issue purely from an optimal tax smoothing perspective—that is, weighing the cost and benefits of raising taxes to pay down debt. By doing so we decidedly do not engage in the current debate about the contribution that fiscal policy may make to demand management. […]