5. Les gouvernements doivent-ils réduire la dette publique ?

Financial bailouts and budget deficits during the Great Recession have resulted in some of the highest public debt ratios seen in advanced economies in the past 40 years. Recent debates have centered on the pace at which to pay down this debt, with few questions being asked about the desirable level of public debt to which the economy should converge. We argue that for countries that maintain fiscal space, paying down debt is undesirable because the distortive cost of policies to deliberately pay down the debt is likely to exceed the crisis-insurance benefit from lower debt. Determining whether a country has fiscal space is not a mechanical exercise, though it is possible to look at the behaviour of primary balances to assess risks to debt sustainability. Finally, we argue that although inherited public debt represents a deadweight burden on the economy, dimming both its investment and growth prospects, this does not justify that reducing debt is desirable because inherited debt is now a sunk cost.