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Should We Worry about Government Debt? Thoughts on Australia's COVID‐19 Response

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  • Chris Edmond
  • Richard Holden
  • Bruce Preston

Abstract

No. While the COVID‐19 crisis has required a dramatic increase in debt‐financed government spending, in the current conditions the benefits from this debt are unusually high and the costs unusually low. While conditions can change, the Australian Government can right now hedge against these risks by lengthening the maturity structure of government debt, even at the cost of a modest increase in its current servicing costs.

Suggested Citation

  • Chris Edmond & Richard Holden & Bruce Preston, 2020. "Should We Worry about Government Debt? Thoughts on Australia's COVID‐19 Response," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 53(4), pages 557-565, December.
    • Handle: RePEc:bla:ausecr:v:53:y:2020:i:4:p:557-565
    DOI: 10.1111/1467-8462.12402
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    References listed on IDEAS

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    1. Olivier J Blanchard, 2019. "Public Debt: Fiscal and Welfare Costs in a Time of Low Interest Rates," Policy Briefs PB19-2, Peterson Institute for International Economics.
    2. Del Negro, Marco & Giannone, Domenico & Giannoni, Marc P. & Tambalotti, Andrea, 2019. "Global trends in interest rates," Journal of International Economics, Elsevier, vol. 118(C), pages 248-262.
    3. Olivier Blanchard, 2019. "Public Debt and Low Interest Rates," American Economic Review, American Economic Association, vol. 109(4), pages 1197-1229, April.
    4. Giovanni Caggiano & Efrem Castelnuovo & Valentina Colombo & Gabriela Nodari, 2015. "Estimating Fiscal Multipliers: News From A Non‐linear World," Economic Journal, Royal Economic Society, vol. 0(584), pages 746-776, May.
    5. Rachael McCririck & Daniel Rees, 2017. "The Neutral Interest Rate," RBA Bulletin (Print copy discontinued), Reserve Bank of Australia, pages 09-18, September.
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    Cited by:

    1. Gigi Foster & Paul Frijters, 2024. "Hiding the elephant: The tragedy of COVID policy and its economist apologists," Australian Economic Papers, Wiley Blackwell, vol. 63(1), pages 106-144, March.
    2. Basse, Tobias & Wegener, Christoph, 2022. "Inflation expectations: Australian consumer survey data versus the bond market," Journal of Economic Behavior & Organization, Elsevier, vol. 203(C), pages 416-430.
    3. Wu, Julia Yonghua & Opare, Solomon & Bhuiyan, Md. Borhan Uddin & Habib, Ahsan, 2022. "Determinants and consequences of debt maturity structure: A systematic review of the international literature," International Review of Financial Analysis, Elsevier, vol. 84(C).

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