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Reducing High Public Debt Ratios: Lessons from UK Experience *
Author(s) -
Crafts Nicholas
Publication year - 2016
Publication title -
fiscal studies
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.63
H-Index - 40
eISSN - 1475-5890
pISSN - 0143-5671
DOI - 10.1111/j.1475-5890.2015.12064
Subject(s) - economics , debt , deflation , financial repression , debt to gdp ratio , interest rate , monetary economics , public spending , debt ratio , internal debt , supply side , fell , economic policy , macroeconomics , monetary policy , political science , paleontology , politics , biology , law
Abstract This paper examines contrasting experiences of the United Kingdom in addressing high public debt to GDP ratios following major wars. A clear message is that interest rate / growth rate differentials were more important than primary budget surpluses for the different outcomes. The debt to GDP ratio fell very rapidly under financial repression following the Second World War but remained stubbornly high despite large budget surpluses with price deflation after the First World War. Implications for policymakers today are that averting price deflation is a high priority and that supply‐side policies that raise growth could play an important part in debt reduction.