A group of central bankers in Jackson, Wyoming were recently told by researchers that government expenditure in a recession can in fact strengthen a country’s economy without necessarily inflating its public debt, even if the debt is already rather substantial to begin with.
According to a paper published by professors at the University of California in Berkeley, Alan Auerbach and Yuriy Gorodnichenko, growing fiscal policies may not only prompt output, but could also minimise the debt-to-GDP ratios when the economy is weak.
The paper was released at the Federal Reserve’s Annual Economic Symposium in Kansas City. The core focus of this year’s symposium is what is the best way to support a healthier global economy.
Following the 2007-2009 financial crisis, the fear of soaring public debt urged fiscal authorities to ratchet bank government expenditure in some countries. And so, economists now believe that this strategy may have sadly delayed recovery.