Thompson Rivers University

Is the global transmission of government debt a negative externality?

July 21, 2012

Professor Young Cheol Jung from the Department of Economics at Thompson Rivers University and Professor Nguyen Van Quyen from University of Ottawa received notice that their paper entitled “The Global Transmission of Government Debt,” has been accepted for publication in the “Topics in Macroeconomics” tier of the B.E. Journal of Macroeconomics. The B.E. Journal of Macroeconomics is an A ranked journal according to the Australian ABCD Business Deans journal ranking database.

I think the party's overThis research is highly relevant and important given our current world macroeconomic environment and the European Debt crises. The research provides new insights into the implications of government debt within a global environment. Young and Quyen remove many of the ambiguities associated with the impact of government debt not only on the nation that borrows funds to make transfers to the older generation but the global transmission of such “self-interest” behavior on other nations around the world. The finding that I found most interesting is that not only the welfare of the nation borrowing to finance transfers is lower in a new steady state but that the welfare of other nations is negatively impacted from this action. Basically, a nation that borrows excessively and runs huge deficits imposes a negative externality (a cost) on other nations that are not engaging in such a behavior. The current aging population of Japan and Western Europe as well as that of China and North America by 2040 will require increased public spending on pensions and health care. Engaging in borrowing to fund such public spending will result in a lower welfare for many more nations than only those nations with a high age dependency ratio.

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