The Dynamic Optimal Allocation of Public Debt Space:The Necessity of Prudent Debt Policies
In recent years,global debt levels have risen sharply due to the impacts of the financial crisis and the COVID-19 pandemic.Governments worldwide face the dual challenge of leveraging debt to stimulate economic growth while maintaining fiscal sustainability.Within the realm of academic research,debates on government debt have predominantly focused on the overall scale of debt,while neglecting the long-term implications of the dynamic trajectory of government debt on economic outcomes.This paper constructs a theoretical model for the dynamic allocation of public debt space,grounded in the limited nature of debt space and the factors influencing government borrowing decisions.Using theoretical analyses and numerical simulations,this paper identifies the optimal principle guiding the dynamic allocation of government debt space and evaluates the impact of factors such as exogenous changes in debt space,discount rates,debt investment efficiency,and technological progress on the optimal trajectory.This paper further calibrates the model with real data from China to simulate the optimal dynamic allocation trajectory of public debt space up to 2050.The findings show that the dynamic allocation of government debt must follow the principle of"intergenerational equalization of marginal effects",meaning that the present value of the marginal effects of debt issuance should be equal across different periods.Based on this principle,the optimal debt issuance path for the Chinese government should follow a convex growth pattern,which is characterized by cautiously borrowing in the early stages to preserve debt space for later use.In addition,considering China's current stage of development and future government debt demands,the allocation of debt space should be further deferred to later periods.Compared to existing research,this paper makes several contributions.First,from the perspective of normative economics,it extends conventional research on government debt by adopting a dynamic framework to study the problem of the dynamic allocation of public debt space over time,offering a new perspective on academic debates surrounding government debt.Second,based on existing studies on the relationship between government debt and economic growth,this paper clarifies the different mechanisms through which government debt stock and flow affect economic growth,thereby deepening the understanding of the complex economic effects of public debt.Finally,in terms of policy implications,this paper provides a clear principle for the optimal allocation of public debt space-the principle of intergenerational equalization of marginal effects.It highlights the"opportunity cost"of government borrowing and the trade-offs involved,providing theoretical support for the necessity of prudent debt policies.Furthermore,it offers valuable references for enhancing the dynamic efficiency of public debt allocation,balancing the debt requirements across different stages of development,and achieving the dual objectives of"stabilizing growth"and"mitigating risks".
public debt spacedynamic optimal allocationintergenerational equalizationprudent debt policies
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