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Public Debt and Low Interest Rates

Blanchard develops four main arguments concerning the costs of public debt when safe interest rates are low. First, the current US situation in which safe interest rates are expected to remain below growth rates for a long time is more the historical norm than the exception. If the future is like the past, this implies…

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Mainstream View

The Political Economy of Public Debt

We survey recent theories of public debt that incorporate political decision making in rich dynamic environments. These theories provide a new framework with which to interpret empirical evidence and to assess institutional reforms that may help control political inefficiencies. We discuss the inefficiencies that lead to overaccu-mulation of debt and their implications for the long-run…

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