TY  - GEN
AB  - Testing the reaction of the primary surplus to variations in public debt, relative
to GDP respectively, has been frequently resorted to in order to test for sustainabil-
ity of a given debt policy. In this contribution, we analyze theoretically under which
condition a positive reaction of the primary surplus to variations in debt implies
a sustainable debt policy. We demonstrate that the evolution of the debt to GDP
ratio plays a decisive role as concerns the validity of the test outcome. In addition,
we demonstrate that a positive reaction coefficient does not guarantee sustainability
unless it exceeds at least the difference between the interest rate on public debt and
the GDP growth grate. Thus, this test allows judgements about sustainability of
public debt policies only if the interest rate and the GDP growth rate are known.
DA  - 2013
DO  - 10.4119/unibi/2915423
KW  - Debt sustainability
KW  - critical debt
KW  - primary surplus
KW  - reaction function
LA  - eng
PY  - 2013
SN  - 2196-2723
SP  - 9-
TI  - How to test for debt sustainability? Some theoretical reflections on an empirical test
UR  - https://nbn-resolving.org/urn:nbn:de:0070-pub-29154234
Y2  - 2024-11-22T05:40:06
ER  -