Fiscal crises and aggregate demand can high public debt

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1、JOURNALOFPUBLICECONOMICSELSEVIERJournalofPublicEconomics65(1997)147-162Fiscalcrisesandaggregatedemand:canhighpublicdebtreversetheeffectsoffiscalpolicy?AlanSutherland*DepartmentofEconomicsandRelatedStudies,UniversityofYork,Heslington,York.YOI5DD.UKReceived1February1996;rec

2、eivedinrevisedform1November1996AbstractThispapershowshowthepoweroffiscalpolicytoaffectconsumptioncanvarydependingonthelevelofpublicdebt.Atmoderatelevelsofdebtfiscalpolicyhasthetraditionalkeynesianeffects.Currentgenerationsofconsumersdiscountfuturetaxesbecausetheymaynotbea

3、livewhentaxesareraised(ortherewillbealargerpopulationavailabletopaythetaxes).Butwhendebtreachesextremevalues,currentgenerationsofconsumersknowthereisahighprobabilitythattheywillhavetopayextrataxes.Afiscaldeficitcanhaveacontractionaryeffectinthesesituations.©1997ElsevierSc

4、ienceS.A.Keywords."Fiscalpolicy;Publicdebtstabilisation:AggregatedemandJELclassification:E21;E62;H69I.IntroductionIn1993,afteranumberofyearsoflargebudgetdeficitsandrapidlygrowingpublicdebt,theUKgovernmentannouncedaprogrammeoftaxincreases.Thegovernmentclaimedthatstabilisat

5、ionofpublicdebtwasapreconditionforasustainedrecoveryfromrecession.AsimilarargumentwasadvancedfortheUKbudgetin1981whichalsointroducedlargetaxincreasesinthemiddleofarecession.OtherrelevantexamplesofdebtstabilisationprogrammesoccurredinDenmarkin1982andIrelandin1982and1987.E-

6、mad:ajsl3@york.ac.uk0047-2727/97/$17.00©1997ElsevierScienceS.A.Allrightsreserved.PIIS0047-2727(97)00027-3148A.Sutherland/JournalofPublicEconomics65(1997)147-162Atatimeofrecessionanincreaseintaxesandareductioninthefiscaldeficitistheoppositeofthetraditionalkeynesianpolicypr

7、escription.Atraditionalkeynesianwouldrecommendacutintaxesandanincreaseinthedeficitasameansofstimulatingaggregatedemand.TheactionsoftheUK,DanishandIrishgovernmentsareclearlybasedonanopposingviewoftheeffectsoffiscalpolicy.Thisviewsuggeststhatdeficitfinancingdiscouragespriva

8、tesectorspendingbecauseprivateagentsfeartheeventualconsequencesofaccumulatingpublicdebt.Hencefor