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Some macroeconomic implications of rising levels of government debt

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The level of government debt in Canada relative to gross domestic product has risen steadily since the mid-1970s. Canada has not been alone in experiencing rising government indebtedness, but in comparison to other countries, Canada's debt load is now distinctly on the high side. The author reviews some of the effects of rising government debt levels on macroeconomic performance and provides some calculations aimed at illustrating their possible long-run impact on the Canadian economy. His analysis, which is based on a model of the Canadian economy used at the Bank of Canada, suggests that higher levels of government debt reduce both the level of output and the share of output that is available for domestic consumption. The central policy implication is that there are substantial benefits to halting the rise in government debt and thus preventing further erosion of consumption opportunities.

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  • Tiff Macklem, 1995. "Some macroeconomic implications of rising levels of government debt," Bank of Canada Review, Bank of Canada, vol. 1994(Winter), pages 41-60.
    • Handle: RePEc:bca:bcarev:v:1995:y:1995:i:winter94-95:p:41-60
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    JEL classification:

    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General
    • H60 - Public Economics - - National Budget, Deficit, and Debt - - - General

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