Must-Read: Jonathan Ostry et al.: Don’t Sweat the Debt If Fiscal Space Is Ample
Must-Read: Don’t Sweat the Debt If Fiscal Space Is Ample: “High public debt ratios dominate today’s fiscal policy discussions…:
…This column argues that paying down the debt involves a trade-off that balances the gains from the insurance value of low debt against the costs of an insurance premium – higher distortionary taxation. When countries have fiscal space and no real prospect of a sovereign crisis, the cost of bringing down the debt is likely to exceed the crisis-insurance benefit. The best policy might be to simply live with higher debt.