Government spending in a recession can boost a country’s economy without permanently bloating its public debt, even if the debt is already quite large, researchers told an influential group of central bankers in Jackson, Wyoming, on Saturday.
“Expansionary fiscal policies adopted when the economy is weak may not only stimulate output but also reduce debt-to-GDP ratios,” University of California, Berkeley, professors Alan Auerbach and Yuriy Gorodnichenko said in a paper presented at the Kansas City Federal Reserve’s annual economic symposium.
The symposium’s focus this year is on how best to foster a stronger global economy.
After the 2007-2009 global financial crisis, fear of ballooning public debt pushed fiscal authorities in some countries to ratchet back government spending, a tactic that economists now think may have slowed recovery.
But with debt levels high by historical standards in many countries, including the United States where debt is about 76 percent of the