Template-Type: ReDIF-Paper 1.0
Title: Fiscal Policy With High Debt and Low Interest Rates
Author-Name: William Gale
Abstract: The U.S. budget trajectory is in uncharted territory. The country faces
  a structural deficit, accrued the largest increase in debt on record
  during the current economic recovery, and is expected to surpass its
  WWII-era debt-to-GDP record of 106 percent within the next 30 years.
  
  Gale argues that although historically low interest rates reduce the
  cost of government borrowing, they are not­ a “get out of jail free
  card.” Rising debt will slowly but surely make it harder to grow the
  economy, boost living standards, respond to wars or recessions, address
  social needs, and maintain the nation’s role as a global leader.
  
  Gale argues that policymakers should enact a debt reduction plan that is
  gradually implemented over the medium- and long-term. This would avoid
  reducing aggregate demand significantly in the short-term and, if done
  well, could actually stimulate current consumption and production. Doing
  so would also stimulate growth in the long-term, provide fiscal
  insurance against higher interest rates or other adverse outcomes, give
  businesses and individuals clarity about future policy and time to
  adjust, and provide policymakers with assurance that they could consider
  new initiatives within a framework of sustainable fiscal policy. In the
  short-term, policymakers should increase spending on infrastructure,
  R&D, children, families, and human capital. He also argues that the
  federal government should implement consumption- and carbon-based taxes
  to raise more revenue.
Creation-Date: 2019-11-01
Keywords: macroeconomics, public finance, fiscal policy
File-URL: https://www.economicstrategygroup.org/wp-content/uploads/2026/06/Fiscal-Policy-With-High-Debt-and-Low-Interest-Rates.pdf
File-Format: Application/PDF
Handle: RePEc:cxx:wpaper:fiscal-policy-with-high-debt-and-low-interest-rates