The Problem with Debt
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Bibliographic details
- Authors: CAMILLA LUND ANDERSEN
- Published: March 1, 2018
Framing and core question
- Central question: “How much is too much debt?”
- Core concern: High public and private debt risks choking off growth by crowding out investment in future growth drivers such as education, health, and measures to address low productivity.
Findings and analysis highlighted in the issue
- Advanced-economy fiscal adjustment:
- Alberto Alesina, Carlo Favero, and Francesco Giavazzi find that countries take a smaller hit to growth if they cut spending—including for entitlement programs—than if they raise taxes.
- The authors argue that raising taxes can be self-defeating, potentially leading to even higher debt and lower growth.
- Inequality and social spending:
- François Bourguignon (World Bank’s former chief economist) reviews how best to address rising inequality and how to assess difficult trade-offs between debt reduction and protecting social spending.
- Low-income and emerging-market challenges:
- Fanwell Bokosi (African Forum and Network on Debt and Development) notes that expanding the tax base and increasing the efficiency of public spending are key challenges.
- He emphasizes that today’s debt crises are harder to resolve than previous ones because the debt landscape is more complex.
Policy implications and recommendations
- Use the current upswing to strengthen public finances:
- Governments should use the current economic upswing to “put their house in order.”
- Timing and risk:
- Rising interest rates will soon make it harder to refinance and service debt, increasing urgency for corrective action.
- Trade-offs to consider:
- Advanced economies face a trade-off between spending cuts and tax increases, with evidence suggesting spending cuts may have smaller adverse effects on growth but raise distributional and political concerns.
- Low-income and emerging-market economies need to focus on broadening the tax base and improving public spending efficiency.
Editorial perspective
- With the global economy “humming along,” the editor argues there is a rare opportunity to act before financing conditions tighten.
- The issue frames debt reduction as essential to freeing resources for future growth and to addressing persistent low productivity that holds back wages.
IMF F&D — The Problem with Debt (March 2018), Editor's Letter
Content in this bundle
- مشكلة الديون
- Ejercicio de equilibrio ● Finanzas y Desarrollo ● Marzo de 2018
- Le problème de la dette
- The Problem with Debt
- От редактора – Финансы и развитие – март 2018 года
- 债务问题 - 编者的话 - <金融与发展>, 2018年3月号·第55卷·第1期, 国际货币基金组织季刊