Sustainability and Optimality of Public Debt
This book studies the sustainability and optimality of public debt under different scenarios: the closed economy, the small open economy, and a two-country setting. Sustainability refers to the existence and the stability of the long-run equilibrium. Opti
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Michael Carlberg • Arne Hansen
Sustainability and Optimality of Public Debt Second Edition
Prof. Dr. Michael Carlberg Dr. Arne Hansen Department of Economics Helmut Schmidt University Hamburg, Germany
Originally published under: Carlberg, M. within the series: Contributions to Economics ISBN 978-3-642-32966-1 ISBN 978-3-642-32967-8 (eBook) DOI 10.1007/978-3-642-32967-8 Springer Heidelberg New York Dordrecht London Library of Congress Control Number: 2012954557 © Springer-Verlag Berlin Heidelberg 1995, 2013 This work is subject to copyright. All rights are reserved by the Publisher, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed. Exempted from this legal reservation are brief excerpts in connection with reviews or scholarly analysis or material supplied specifically for the purpose of being entered and executed on a computer system, for exclusive use by the purchaser of the work. Duplication of this publication or parts thereof is permitted only under the provisions of the Copyright Law of the Publisher’s location, in its current version, and permission for use must always be obtained from Springer. Permissions for use may be obtained through RightsLink at the Copyright Clearance Center. Violations are liable to prosecution under the respective Copyright Law. The use of general descriptive names, registered names, trademarks, service marks, etc. in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use. While the advice and information in this book are believed to be true and accurate at the date of publication, neither the authors nor the editors nor the publisher can accept any legal responsibility for any errors or omissions that may be made. The publisher makes no warranty, express or implied, with respect to the material contained herein. Printed on acid-free paper Physica is a brand of Springer Springer is part of Springer Science+Business Media (www.springer.com)
Preface
Public debt seems to be one of the most important and controversial issues of our time. In many countries, large and persistent budget deficits have continuously raised the ratio of public debt to GDP. After balanced budgets and even surpluses in the late 1990s, the United States has returned to deficits in recent years. As a result, the US debt ratio has been growing steadily. In the extreme case of Japan, public debt has grown to more than twice the size of GDP. Meanwhile, the German debt ratio has doubled since reunification. These developments raise serious concerns about debt sustainability. Consequently, there are increased political efforts to reduce future defici
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