Should we be Austere? A Normative look at Public Debt

Excessive debt accumulation is an important policy concern in both developing and advanced economies because it is associated with various issues, particularly low growth and high inflation. This is apparent from the deleveraging vs. deficit spending debate; in this, the focus has tended to be on two specific outcomes, that is, on economic growth, and inflation. So, this debate often overlooks the repercussions of debt on economic freedom. Economic freedom may be regarded not just as a means to macroeconomic growth and stability, but also as in end in itself. It tends to be inhibited when the full consequences of rising public debt, whether from external or domestic sources, are misunderstood, particularly when the underlying basis for debt accumulation is neither stimulus nor smoothing.