Government Solvency, Austerity and Fiscal Consolidation in the OECD: A Keynesian Appraisal of Transversality and No Ponzi Game Conditions

Abstract

Abstract:This paper investigates the relevance of the No-Ponzi game condition for public debt (i.e. the public debt growth rate has to be lower than the real interest rate, a necessary assumption for Ricardian equivalence) and of the transversality condition for the GDP growth rate (i.e. the GDP growth rate has to be lower than the real interest rate). First, on the unbalanced panel of 21 countries from 1961 to 2010 available in OECD database, those two conditions were simultaneously validated only for 29% of the cases under examination. Second, those two conditions were more frequent in the 1980s and the 1990s when monetary policies were more restrictive. Third, in tune with the Keynesian view, when the real interest rate is higher than the GDP growth, it corresponds to 75% of the cases of the increases of the debt/GDP ratio but to only 43% of the cases of the decreases of the debt/GDP ratio (fiscal consolidations).

Analysis of Public Debt at Subnational Government Levels: Evidence from Cantons in the Federation of Bosnia and Herzegovina

“…As for the transversality condition which deals with sustainability of the debt in the context of this paper the subnational public debt in FBiH will be prevented from growing on an exponential rate (the snowball effect) only if the transversality condition is met. And this condition is met when the growth of private and of the public debt is lower than the real interest rate charged on this debt in the infinite horizon (Azizi et al 2013) . Again, here we were faced with data availability issue since real interest rate is not measured on subnational levels in FBiH.…”

Reação fiscal, rigidez orçamentária e a sustentabilidade da dívida pública no Brasil: uma abordagem por meio de MS-VECM

“…Isso implica que o governo pagará dívida com mais dívida, rolando-a indefinidamente. Os modelos convencionais de sustentabilidade da dívida pública não admitem essa hipótese(Azizi et al, 2012).…”