Intermediate Macroeconomics Lecture 12
1 Intermediate Macroeconomics Lecture 12
Government Debt 口 Scale of govern.debt a Is budget deficit correctly measured? a Traditional view of govern. Debt 口 Ricardian equivalence a other possible effects of govern. debt
2 Government Debt Scale of govern. debt Is budget deficit correctly measured? Traditional view of govern. Debt Ricardian equivalence Other possible effects of govern. debt
Scale of govern Debt 阿刚gy!ssss ina 6.14|8.5810.461.2 rance germany1.5138.8418.14.957.16.361.8|63161.2160.560.2462.4163.7 apan 6|6.163.516973.98.48.529210181234132.614 alwan Ls6d451h时6 DOECD Economic Outlook 72(Dec. 2002) ahttp://www.economist.com
3 Scale of Govern. Debt 9 0 9 1 9 2 9 3 9 4 9 5 9 6 9 7 9 8 9 9 00 01 02 03 China 6.14 8.58 10.46 13.2 France 39.5 40.3 44.7 51.6 55.3 62.9 66.5 68.2 7 0 66.2 65.4 6 5 66.7 68.4 Germany 41.5 38.8 41.8 47.4 47.9 57.1 60.3 61.8 6 3 61.2 60.5 60.2 62.4 63.7 Japan 64.6 61.1 63.5 6 9 73.9 80.4 86.5 9 2 103 115.8 123.4 132.6 142.7 151 Taiwan 25.57 28.66 28.92 3 1 U.S. 66.6 71.4 74.1 75.8 7 5 74.5 73.9 71.4 6 8 65.3 59.5 59.7 60.7 6 2 U.K. 44.4 44.3 49.2 58.1 55.8 60.6 60.1 60.5 6 2 56.3 51.5 50.7 50.8 50.6 OECD Economic Outlook 72 (Dec. 2002) http://www.economist.com
Is Budget Deficit correctly measured? 1, Inflation Real govern, debt stays the same (100 apple, $1 each) price rises 50% > Nominal govern debt becomes $150 →$50 deficit Current method tends to overstate deficit when there is inflation
4 Is Budget Deficit correctly measured? 1. Inflation Real govern. debt stays the same (100 apple,$1 each) price rises 50% → Nominal govern. debt becomes $150 → $50 deficit Current method tends to overstate deficit when there is inflation
Is Budget Deficit correctly measured? 2. Capital assets Government's assets and liabilities should be considered (capital budgeting) budget deficit change in liabilities- change in assets Hard to decide which expenditures should count as capital expenditures
5 Is Budget Deficit correctly measured? 2. Capital Assets Government’s assets and liabilities should be considered (capital budgeting) budget deficit = change in liabilities - change in assets Hard to decide which expenditures should count as capital expenditures…
Is Budget Deficit correctly measured? 3. Uncounted liabilities Current measure excludes some important govern liabilities e.g. pensions of govern. workers social security system contingent lia bility
6 Is Budget Deficit correctly measured? 3. Uncounted liabilities Current measure excludes some important govern. liabilities e.g. pensions of govern. workers social security system contingent liability
Is Budget Deficit correctly measured? 4. Business cycle Recession Tax income decreases Transfer increases Budget deficit increases Change in budget deficit depends not only on govern policies, but also on business cycle
7 Is Budget Deficit correctly measured? 4. Business cycle Recession: Tax income decreases Transfer increases Budget deficit increases Change in budget deficit depends not only on govern. policies, but also on business cycle
The Traditional view of govern. Debt a Short-run E Y=E C(Y-T)+I+G IS
8 The Traditional View of Govern. Debt Short-run Y E Y r E=C(Y-T)+I+G Y=E LM IS
The Traditional view of govern. Debt Taⅹcut > Consumption increases → Output increases
9 The Traditional View of Govern. Debt Tax cut → Consumption increases → Output increases
The Traditional view of govern. Debt 日 Long -run S=Y-C(Y-D)-G sf(k) IS k
10 The Traditional View of Govern. Debt Long-run I,S r k y I S=Y-C(Y-T)-G i=sf(k) k
