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Cambridge Journal of Economics Advance Access published online on April 6, 2009
Cambridge Journal of Economics, doi:10.1093/cje/bep010
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© The Author 2009. Published by Oxford University Press on behalf of the Cambridge Political Economy Society. All rights reserved.

Public debt sustainability and alternative theories of interest

Tony Aspromourgos, Daniel Rees and Graham White*

* Faculty of Economics and Business, University of Sydney, Australia

Address for correspondence: Tony Aspromourgos, Faculty of Economics and Business, University of Sydney, NSW 2006, Australia; email: T.Aspromourgos{at}econ.usyd.edu.au

This paper reappraises sustainable trajectories of public debt and fiscal balance, with particular reference to the possible relations between the interest rate on debt and the growth rate of the economy. From the standpoint of the approach to the theory of interest proposed by Keynes—and, in a certain sense, also by Sraffa—the analysis opens up the possibility of sustaining permanent primary budget deficits. However, the extent to which this standpoint enables one to revise the spectrum of feasible empirical magnitudes for sustainable fiscal balances appears rather modest.

Key Words: Sustainable fiscal balance • Keynes • Sraffa

JEL classifications: E43, E58, E63, H63

Manuscript received March 19, 2007; final version received October 6, 2008.


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