Open Access Journal Article

Mild Inflation Naturally Prevents Divergence of Debt to GDP Ratio

by Yasuhito Tanaka a,*
a
Faculty of Economics, Doshisha University, Kyoto, Japan
*
Author to whom correspondence should be addressed.
EAL  2024 3(4):67; https://doi.org/10.58567/eal03040002
Received: 13 September 2024 / Accepted: 15 November 2024 / Published Online: 24 December 2024
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Abstract

This paper shows mainly the following results. 1) The debt to GDP ratio cannot diverge to infinity, that is, fiscal collapse is impossible. The necessary condition for this result is that the propensity to consume from the asset is positive. 2) The divergence of the debt to GDP ratio is prevented by inflation when the interest rate on government bonds is considerably higher than the real growth rate, and the inflation rate which is sufficient to prevent divergence of the debt to GDP ratio is smaller than the interest rate on government bonds. Only an inflation rate slightly greater than the difference between the interest rate on government bonds and the sum of the real growth rate and the propensity to consume from the asset is required. This inflation is not caused by policy but occurs naturally.

Keywords: Prevention of Debt to GDP Ratio Divergence; Mild Inflation; Budget Deficit;
Copyright: © 2024 by Tanaka. This is an open-access article distributed under the terms of the Creative Commons Attribution License (CC BY) (Creative Commons Attribution 4.0 International License). The use, distribution or reproduction in other forums is permitted, provided the original author(s) or licensor are credited and that the original publication in this journal is cited, in accordance with accepted academic practice. No use, distribution or reproduction is permitted which does not comply with these terms.

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ACS Style
Tanaka, Y. Mild Inflation Naturally Prevents Divergence of Debt to GDP Ratio. Economic Analysis Letters, 2024, 3, 67. https://doi.org/10.58567/eal03040002
AMA Style
Tanaka Y. Mild Inflation Naturally Prevents Divergence of Debt to GDP Ratio. Economic Analysis Letters; 2024, 3(4):67. https://doi.org/10.58567/eal03040002
Chicago/Turabian Style
Tanaka, Yasuhito 2024. "Mild Inflation Naturally Prevents Divergence of Debt to GDP Ratio" Economic Analysis Letters 3, no.4:67. https://doi.org/10.58567/eal03040002
APA style
Tanaka, Y. (2024). Mild Inflation Naturally Prevents Divergence of Debt to GDP Ratio. Economic Analysis Letters, 3(4), 67. https://doi.org/10.58567/eal03040002

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References

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