Overaccumulation, Public Debt, and the Importance of Land
Overaccumulation, Public Debt, and the Importance of Land Stefan Homburg Discussion Paper No. 525 ISSN 0949-9962 Published: German Economic Review 15 (4), pp. 411-435. doi:10.1111/geer.12053 Institute of Public Economics, Leibniz University of Hannover, Germany. www.fiwi.uni-hannover.de. Abstract: In recent contributions, Weizsäcker (2014) and Summers (2014) maintain that mature economies ac- cumulate too much capital. They suggest large and last- ing public deficits as a remedy. This paper argues that overaccumulation cannot occur in an economy with land. It presents novel data of aggregate land values, analyzes the issue within a stochastic framework, and conducts an empirical test of overaccumulation. Keywords: Dynamic efficiency; overaccumulation; land; fiscal policy; public debt JEL-Classification: D92, E62, H63 Thanks are due to Charles Blankart, Friedrich Breyer, Johannes Hoffmann, Karl-Heinz Paqué, and in particu- lar to Marten Hillebrand and Wolfram F. Richter for very helpful suggestions. 2 1. Introduction In a recent article, Carl-Christian von Weizsäcker (2014) challenged the prevailing skepti- cal view of public debt. In a modernized Austrian framework, he argues that the natural real rate of interest, i.e. the rate that would emerge in the absence of public debt, has be- come negative in OECD economies and China. Because nominal interest rates are posi- tive, governments face an uneasy choice between price stability and fiscal prudence: They must either raise inflation in order to make negative real and positive nominal interest rates compatible, or lift the real interest rate into the positive region via deficit spending. To substantiate his point, Weizsäcker claims that the average waiting period, the ratio of private wealth and annual consumption, has risen historically whereas the average produc- tion period, the ratio of capital and annual consumption, has remained constant.
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