Theory of Public Debt
This course (in English) provides a mainly theoretical overview of the role played by
public debt in the economy and discusses its links with tax policy both from a normative and a
positive perspective. In a first step, students are introduced to the concept of public debt and its
relationship with various measures of the net worth of the public sector. Then, the intertemporal
budget constraint of the government is defined and the notion of fiscal sustainability is discussed.
We then analyze various models that offer distinctive views on the effects – if any - of public debt.
Thereupon the issue about the optimal management of public debt is attacked. In a further step,
various politico-economics models are used to discuss the tendency of governments to
overborrow and to assess rules and institutions aimed at counteracting that tendency. The final
part of the course applies the insights gained so far to illuminate the current challenges faced by
the European Union with respect to fiscal policy.