Economic approaches of public debt sustainability: A narrative literature review

Abstract

Since the 1970s, the excessive accumulation of public debt has become a normal practice following countries repeated recourse to this type of financing. The old debate on the necessity of public debt then opens the way to new questions such as: What is the level of a country's public debt considered sustainable at a given time? Is there a universal level of sustainable public debt for all countries combined? Therefore, the economic literature offers more than one approach to define public debt sustainability. Given that public debt occupies a prominent place in countries' public finances, understanding the different economic facets of its sustainability is of great use when formulating coherent fiscal policy strategies. This article presents a narrative literature review on economic approaches of public debt sustainability and analyzes their divergences. It turns out that the first approach considers public debt sustainability as a synonym of the country's long-term solvency. The second approach considers public debt sustainability as a synonym of the debt ratios stability (Public debt/GDP, Public debt/GNP) over time. The third approach considers public debt sustainability as a synonym of the combination of a country's long-term solvency and its short-term liquidity. The fourth approach considers public debt sustainability as a synonym of optimal effects on economic growth. The last approach considers public debt sustainability as a synonym of the debtor country's willing to repay its financial commitments as much as possible.