Download or read book Costly Increases in Public Debt when R written by Yongquan Cao and published by International Monetary Fund. This book was released on 2024-01-12 with total page 29 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper quantifies the costs of a permanent increase in debt to GDP. We employ a deterministic, overlapping generations model with two assets and no risk of default. The two assets are public debt and private (productive) capital. We assume that the return on private capital equals the interest rate on public debt plus an exogenously given spread. Employing a analytical version of the model we show an example in which a permanent rise in the public debt ratio leads to a significant reduction in steady-state GDP even as r