Therefore, the present work intends to present an interdisciplinary lecture (which may be well given by a Physics instructor) by which the topic of public debt formation is introduced to high-school students. Therefore, we may set, for simplicity. By considering a simple model for economic growth, we have addressed the question of the extinction of public debt in a given country. Drastic measures are necessary to check the rapid growth of current and future liabilities of governments and reduce their adverse consequences for long-term growth and monetary stability. © 2008-2020 ResearchGate GmbH. (c) Copyright Oxford University Press, 2020. Using the method of optimal control, the paper derives the equilibrium time paths of both voting support and primary deficit by the incumbent in a dynamic model of finite time horizon under complete information. 0000622756 00000 n 1b various curves giving the exact dynamics of public debt have been calculated numerically. 0000045258 00000 n %%EOF [ Links ], Recebido em 18/10/2011; Aceito em 12/4/2012; Publicado em 7/12/2012, All the contents of this journal, except where otherwise noted, is licensed under a Creative Commons Attribution License. 0000004064 00000 n Computed impulse responses incorporate the dynamic effect of the debt-to-GDP ratio, feeding from the debt 1a (γα = 1) and the adjacent dotted curves are plotted for the same parameters as in the full line curves except for the value of γα , taken to be 0.99. In this section we derive the diﬀerence equation describing the PD v. one needs to consider the exchange-rate eﬀect. For r < ρ, on the other hand, it is possible to observe either a finite debt extinction time, or the impossibility of paying back the initial debt b0, despite a very long time series of periods of growing tax pools Y0. Consider now successive periods t > 1. (2001), page. trailer On the other hand, if λ0 > 0, we further make the following distinction. The tightening makes constrained agents deleverage and reinforces the precautionary saving motive of the unconstrained. to check whether private debt has an effect on GDP in the short-run. Graphic detail. 0000002342 00000 n 0000003427 00000 n the debt-stabilizing primary balance can be approximated as follows: As deﬁned in eq.22, the debt-stabilizing primary balance is equal to the real interest/real growth. https://www.modernghana.com/news/1006421/public-debt-dynamics-in-africa-post-covid-19-pande.html Using α+ ξ= 1 and that K= K¯ in equilibrium, proﬁt maximization gives r = αLβ (7) w = βLβ−1K (8) 2, where full line curves are chosen from Fig. (14). The level of voting support obtained in case of both types of incumbents is found to be positive and rising over time. 0000124757 00000 n 0000001766 00000 n 0000002981 00000 n There are many different types of matrices that are sometimes singled out in the literature for special attention. 0000124802 00000 n 0000032874 00000 n In eq.2 the primary balance has a negative sign: match, their diﬀerence equals the so-called, which either cause debt but do not generate deﬁcit (type 1), or which cause deﬁcit but not debt. %PDF-1.4 %���� To keep the model tractable, we do not provide a detailed micro-foundation of the endogenous response of interest costs to the dynamics of debt as Bhandari et al. Despite one might set forth the optimistic assumption of economic growth, we shall see that the rate ρ needs to be sufficiently high for debt extinction to be possible. The dynamical equation for the debt b t in period t is given by the following difference Eq. Dividing the equation (3) to GDP for year t and performing some algebraic transformations, similar to (, Central Government Debt: Statistical Yearbook. Thus, the paper determines the gap to the level of primary balance consistent with debt sustainability under different scenarios and concludes that the current level of public indebtedness, alongside with the long term projections of the underlying factors of influence ensure the fulfillment of the obligations to the creditors. (2), where bt - bt - 1 is the deficit at period t and r is a fixed rate of return on public and private debts. α+ξ= 1. It is now easy to show, by successive substitutions, that the solution to Eq. 0000120254 00000 n The composition of debt in the case of foreign-currency debt is (all expressed in local currency): depretiation), the evolution of debt in levels is giv, Starting from eq.11 above and observed that, The eﬀective nominal interest rate is giv. An individual user may print out a PDF of a single chapter of a monograph in OSO for personal use. 0000001991 00000 n Moreover, the tightening affects the political support to the policies mainly through price effects. 31 The top-right panel in Fig. In Figs. Propõe-se um modelo simples para mostrar que apenas quando há valores suficientes altos de uma taxa constante ρ de aumento de recursos tributáveis é que pode ser estabelecido um número finito de períodos (anos) para pagar uma dívida inicial b0 contratada por um governo com o seu banco nacional de referência. Finally, for ρ = 0.020 and ρ = 0.010 extinction of the debt is not possible, since the curves attain positive curvature for all n, given that λ0 = - 0.22, - 12.59, respectively, and thus it is not possible to satisfy Eq.