IDEAS home Printed from https://ideas.repec.org/a/bba/j00004/v3y2024i4p9-22d370.html
   My bibliography  Save this article

Mild Inflation Naturally Prevents Divergence of Debt to GDP Ratio

Author

Listed:
  • Yasuhito Tanaka

    (Faculty of Economics, Doshisha University, Kyoto, Japan)

Abstract

This paper shows mainly the following results. 1) The debt to GDP ratio cannot diverge to infinity, that is, fiscal collapse is impossible. The necessary condition for this result is that the propensity to consume from the asset is positive. 2) The divergence of the debt to GDP ratio is prevented by inflation when the interest rate on government bonds is considerably higher than the real growth rate, and the inflation rate which is sufficient to prevent divergence of the debt to GDP ratio is smaller than the interest rate on government bonds. Only an inflation rate slightly greater than the difference between the interest rate on government bonds and the sum of the real growth rate and the propensity to consume from the asset is required. This inflation is not caused by policy but occurs naturally.

Suggested Citation

  • Yasuhito Tanaka, 2024. "Mild Inflation Naturally Prevents Divergence of Debt to GDP Ratio," Economic Analysis Letters, Anser Press, vol. 3(4), pages 9-22, December.
    • Handle: RePEc:bba:j00004:v:3:y:2024:i:4:p:9-22:d:370
    as

    Download full text from publisher

    File URL: https://www.anserpress.org/journal/eal/3/4/67/pdf
    Download Restriction: no
    File URL: https://www.anserpress.org/journal/eal/3/4/67
    Download Restriction: no
    ---><---

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bba:j00004:v:3:y:2024:i:4:p:9-22:d:370. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Ramona Wang (email available below). General contact details of provider: https://www.anserpress.org .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.