Mild inflation prevents divergence of debt to GDP ratio

  This paper shows mainly the following results. 1) The debt to GDP ratio cannot diverge to infinity, that is, fiscal collapse is impossible. The necessary and sufficient condition for this result is that the propensity to consume from the asset income is positive. 2) The divergence of the debt to G...

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Bibliographic Details
Published inMACRO REVIEW Vol. 36; no. 1; pp. 5 - 19
Main Author Tanaka, Yasuhito
Format Journal Article
LanguageJapanese
Published JAPAN MACRO-ENGINEERS SOCIETY 2024
日本マクロエンジニアリング学会
Subjects
Budget deficit
Mild inflation
Prevention of debt to GDP ratio divergence
債務・GDP比の発散防止
緩やかなインフレーション
財政赤字
Online AccessGet full text
ISSN0915-0560
1884-2496
DOI10.11286/jmr.36.5

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Summary:  This paper shows mainly the following results. 1) The debt to GDP ratio cannot diverge to infinity, that is, fiscal collapse is impossible. The necessary and sufficient condition for this result is that the propensity to consume from the asset income is positive. 2) The divergence of the debt to GDP ratio is prevented by inflation when the interest rate on government bonds is higher than the real growth rate. We need only an inflation rate slightly greater than the difference between the interest rate on government bonds and the real growth rate. This inflation is not caused by policy but occurs naturally.
ISSN:0915-0560
1884-2496
DOI:10.11286/jmr.36.5