The author argues that high public debt weakens fiscal stimulus through three channels: households save in anticipation of future taxes, investors demand higher yields, and central banks raise rates to contain inflation. Together, these effects can crowd out private demand and potentially make stimulus contractionary.
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Submission statement:
The author argues that high public debt weakens fiscal stimulus through three channels: households save in anticipation of future taxes, investors demand higher yields, and central banks raise rates to contain inflation. Together, these effects can crowd out private demand and potentially make stimulus contractionary.