Government Debt and the Macroeconomy

Government Debt and the Macroeconomy

Year: 2018-2019
Course code: ECON4033
Course credits: 15
Taught: Semester 1
Course co-ordinator: Professor Campbell Leith
Entry requirements: Normally admission to an honours programme in Economics.
Available to visiting students:Yes
Contact for more information: Gillian Weir

Course description

This course seeks to explore both the causes and consequences of the high levels of government debt observed in many developed economies in recent years.

The aim of the course is to:

  • Review the analytics of the government budget constraint and in doing so, reveal the potential interactions between monetary and fiscal policy which are often ignored.
  • In light of the analytical results, the course shall discuss the implications of government debt for optimal policy, firstly by exploring the benchmark of Ricardian Equivalence, before considering the policy of tax smoothing which applies in an environment where taxes are distortionary.
  • We shall then confront these basic theoretical results with the empirical results on the real effects of fiscal policy, particularly the debate on the impact on private consumption of public consumption and whether or not fiscal consolidation can result in a boom.
  • We shall also discuss the political economy of budget deficits and why government debt may be sub-optimally high as a result of imperfections in the political/policymaking process.
  • Finally we shall draw all the material together in assessing the appropriate response to the currently high levels of government debt observed in many developed economies.

Learning and teaching methods

20 hours of lectures (10 x 2 hours), Monday 12:00-14:00

Course texts

There is no single course textbook, but a detailed reading list will be provided in advance of the lectures.

Assessment

An essay of 2,000 words (30%)
A 2-hour degree exam (April/May) (70%)