A CLOSED‐FORM SOLUTION FOR DETERMINING THE BURDEN OF PUBLIC DEBT IN NEOCLASSICAL GROWTH MODELS

This paper develops a new approach, termed as the stock approach, to calculate the steady-state output loss caused by public debt in neoclassical growth models. The novelty of our stock approach is that it provides a closed-form solution to the steady-state output-debt relationship. The main conclusion of the paper is that the steady-state burden of public debt is country-specific in neoclassical growth models and it decreases with the private saving rate and increases with the population growth rate, with the exception of the special case where Ricardian equivalence holds.