In this brief and non-exhaustive mini course on public debt, we started by sketching out the various purposes of fiscal policy, namely the provision of public goods, the redistribution of income and wealth, the allocation of resources in the economy and, last but not least, the stabilisation of the economy. These constitute the context in which public debt arises. A look at the data shows that public debt increased enormously during the global financial crisis and the global pandemic, both of which were among the most unstable periods in recent decades. We looked at the simple definition of public debt and deficit, noting that public debt is usually stated in relation to the size of an economy. Employing illustrative simulations, we also introduced some of the basic dynamics of the debt-to-GDP ratio and some of the challenges they pose for fiscal consolidation.
Please keep in mind that the simulations and scenarios presented in this mini course can only be about developing a sense of the different channels of influence and the magnitudes at stake in the issues surrounding public debt and its trajectory. In our simulations, we have made some highly simplifying assumptions and ignored potentially relevant determinants of public debt. Nevertheless, we hope you found this mini course useful and learned something along the way.
You have reached the end of this mini course on public debt. Thank you for reading through.