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Progress and ConfusionThe State of Macroeconomic Policy$
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Olivier Blanchard, Raghuram G. Rajan, Kenneth S. Rogoff, and Lawrence H. Summers

Print publication date: 2016

Print ISBN-13: 9780262034623

Published to MIT Press Scholarship Online: January 2017

DOI: 10.7551/mitpress/9780262034623.001.0001

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PRINTED FROM MIT PRESS SCHOLARSHIP ONLINE (www.mitpress.universitypressscholarship.com). (c) Copyright The MIT Press, 2021. All Rights Reserved. An individual user may print out a PDF of a single chapter of a monograph in MITSO for personal use.date: 21 September 2021

On the Proper Size of the Public Sector and the Level of Public Debt in the Twenty-First Century

On the Proper Size of the Public Sector and the Level of Public Debt in the Twenty-First Century

Chapter:
(p.197) 20 On the Proper Size of the Public Sector and the Level of Public Debt in the Twenty-First Century
Source:
Progress and Confusion
Author(s):

J. Bradford DeLong

Publisher:
The MIT Press
DOI:10.7551/mitpress/9780262034623.003.0020

This chapter makes a case for higher government spending and higher public debt levels in the twenty first century. First, the economy will shift towards sectors in which market failures are pervasive, which suggests the public sector’s share of the economy will increase. Second, the rate at which the government borrows is lower than the rate at which the economy grows. This form of dynamic inefficiency calls for greater, not lower, debt levels. The chapter concludes by arguing that the potential systemic risks caused by higher public debt levels are relatively small and can be addressed with prudential regulation.

Keywords:   Fiscal Policy, government size, public debt, dynamic inefficiency, systemic risks

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