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It argues that a prolonged period where safe rates fall below growth rates is historically common, making debt rollovers potentially feasible with little or no fiscal cost. It also analyzes welfare effects through capital accumulation, the role of risk-adjusted returns, evidence from asset markets, and how multiple equilibria can amplify fiscal risk.",{"@graph":69,"@context":122},[70,84,105],{"@type":71,"itemListElement":72},"BreadcrumbList",[73,77,79,82],{"item":74,"name":75,"@type":76,"position":8},"https://docshare.wps.com","Home","ListItem",{"item":78,"name":9,"@type":76,"position":14},"https://docshare.wps.com/document/",{"item":80,"name":40,"@type":76,"position":81},"https://docshare.wps.com/document/research-report/",3,{"item":83,"name":65,"@type":76,"position":19},"https://docshare.wps.com/document/public-debt-and-low-interest-rates-lecture/296933/",{"url":83,"name":65,"@type":85,"image":86,"author":91,"headline":65,"publisher":94,"fileFormat":97,"inLanguage":63,"description":67,"dateModified":98,"datePublished":99,"encodingFormat":97,"isAccessibleForFree":100,"interactionStatistic":101},"DigitalDocument",{"url":87,"@type":88,"width":89,"height":90},"https://docshare.wps.com/thumbnails/public-debt-and-low-interest-rates-lecture/296933.png","ImageObject",300,407,{"name":92,"@type":93},"\tCallum ","Person",{"url":74,"name":95,"@type":96},"DocShare","Organization","application/pdf","2026-10-29","2026-09-18",true,{"@type":102,"interactionType":103,"userInteractionCount":39},"InteractionCounter",{"@type":104},"ViewAction",{"@type":106,"mainEntity":107},"FAQPage",[108,114,118],{"name":109,"@type":110,"acceptedAnswer":111},"Why does the lecture focus on safe interest rates that are low?","Question",{"text":112,"@type":113},"It studies the costs of public debt specifically when safe interest rates are low, and how this condition affects fiscal and welfare outcomes.","Answer",{"name":115,"@type":110,"acceptedAnswer":116},"What is the lecture’s argument about fiscal cost when safe rates stay below growth rates?",{"text":117,"@type":113},"It argues that if the future resembles the past, debt rollovers without later tax increases may be feasible, implying public debt may have no fiscal cost.",{"name":119,"@type":110,"acceptedAnswer":120},"How does the lecture explain welfare costs of debt even without fiscal costs?",{"text":121,"@type":113},"It states that even with no fiscal cost, public debt can reduce capital accumulation, creating welfare costs. These outcomes depend on how the safe rate compares to the growth rate and on both average safe and average risky returns.","https://schema.org",{"og:url":83,"og:type":124,"og:title":65,"og:site_name":95,"og:description":67},"article",{"robots":126,"canonical":83},"index,follow",{"doc_id":128,"site_id":62},296933,1789738843,{"code":4,"msg":5,"data":131},{"doc_id":128,"user_id":132,"nickname":92,"user_avatar":133,"doc_module":4,"category_id":39,"category_name":40,"doc_title":65,"doc_description":67,"doc_content":134,"file_id":135,"file_url":136,"file_type":137,"file_size":138,"view_count":39,"is_deleted":4,"is_public":8,"is_downloadable":8,"audit_status":8,"page_count":139,"language":140,"language_code":63,"site_id":62,"html_lang":63,"table_of_contents":141,"faqs":142,"seo_title":143,"seo_description":67,"update_tm":129,"read_time":144,"preview_page_count":4},137451211410,"https://ap-avatar.wpscdn.com/avatar/2000bb0a9246f588df?x-image-process=image/resize,m_fixed,w_180,h_180&k=1786362646172706240","NBER WORKING PAPER SERIES  \nPUBLIC DEBT AND LOW INTEREST RATES  \nOlivier J. Blanchard  \nWorking Paper 25621  \n[http://www.nber.org/papers/w25621](http://www.nber.org/papers/w25621)  \nNATIONAL BUREAU OF ECONOMIC RESEARCH  \n1050 Massachusetts Avenue  \nCambridge, MA 02138  \nFebruary 2019  \nNo research support. The views expressed herein are those of the author and do not necessarily reflect the views of the National Bureau of Economic Research.  \nNBER working papers are circulated for discussion and comment purposes. They have not been peer-reviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications.  \n© 2019 by Olivier J. Blanchard. All rights reserved. Short sections of text, not to exceed two paragraphs, may be quoted without explicit permission provided that full credit, including © notice, is given to the source.  \nPublic Debt and Low Interest Rates  \nOlivier J. Blanchard  \nNBER Working Paper No. 25621 February 2019  \nJEL No. E62  \nABSTRACT  \nThis lecture focuses on the costs of public debt when safe interest rates are low. I develop four arguments.  \nFirst, I show that the current U.S. situation in which safe interest rates are expected to remain below growth rates for a long time, is more the historical norm than the exception. If the future is like the past, this implies that debt rollovers, that is the issuance of debt without a later increase in taxes may well be feasible. Put bluntly, public debt may have no fiscal cost.  \nSecond, even in the absence of fiscal costs, public debt reduces capital accumulation, and may therefore have welfare costs. I show that welfare costs may be smaller than typically assumed. The reason is that the safe rate is the risk-adjusted rate of return to capital. If it is lower than the growth rate, it indicates that the risk-adjusted rate of return to capital is in fact low. The average risky rate however also plays a role. I show how both the average risky rate and the average safe rate determine welfare outcomes.  \nThird, I look at the evidence on the average risky rate, i.e. the average marginal product of capital. While the measured rate of earnings has been and is still quite high, the evidence from asset markets suggests that the marginal product of capital may be lower, with the difference reflecting either mismeasurement of capital or rents. This matters for debt: The lower the marginal product, the lower the welfare cost of debt.  \nFourth, I discuss a number of arguments against high public debt, and in particular the existence of multiple equilibria where investors believe debt to be risky and, by requiring a risk premium, increase the fiscal burden and make debt effectively more risky. This is a very relevant argument, but it does not have straightforward implications for the appropriate level of debt.  \nMy purpose in the lecture is not to argue for more public debt. It is to have a richer discussion of the costs of debt and of fiscal policy than is currently the case.  \nOlivier J. Blanchard  \nPeterson Institute for International Economics 1750 Massachusetts Avenue, NW  \nWashington, DC 20036 and NBER[oblanchard@piie.com](oblanchard@piie.com)  \nAppendices, programs, data are available at  \n[https://piie.com/publications/working-papers/public-debt-and-low-interest-rates](https://piie.com/publications/working-papers/public-debt-and-low-interest-rates)  \nPublic Debt and Low Interest Rates  \nOlivier Blanchard 􀀃  \nFebruary 25, 2019  \n1. Introduction  \nSince 1980, interest rates on U.S. government bonds have steadily decreased. They are now lower than the nominal growth rate, and according to current forecasts, this is expected to remain the case for the foreseeable future. 10-year U.S. nominal rates hover around 3%, while forecasts of nominal growth are around 4%(2% real growth, 2% inflation) . The inequality holdseven more strongly in the other major advanced economies: The 10-year UK nominal rate is 1.3%, compared to forecasts of 10-","cbCaitiBoRMxUieB","https://ap.wps.com/l/cbCaitiBoRMxUieB","pdf",1599733,59,"English","# 1. Introduction\n# Abstract\n# Appendix, programs, data","[{\"question\":\"Why does the lecture focus on safe interest rates that are low?\",\"answer\":\"It studies the costs of public debt specifically when safe interest rates are low, and how this condition affects fiscal and welfare outcomes.\"},{\"question\":\"What is the lecture’s argument about fiscal cost when safe rates stay below growth rates?\",\"answer\":\"It argues that if the future resembles the past, debt rollovers without later tax increases may be feasible, implying public debt may have no fiscal cost.\"},{\"question\":\"How does the lecture explain welfare costs of debt even without fiscal costs?\",\"answer\":\"It states that even with no fiscal cost, public debt can reduce capital accumulation, creating welfare costs. These outcomes depend on how the safe rate compares to the growth rate and on both average safe and average risky returns.\"}]","Public Debt and Low Interest Rates - Lecture | PDF",149]