This article theoretically investigates the effect of expansionary fiscal shocks when the government faces a high debt-to-GDP ratio, under the regime of an active fiscal policy with a passive monetary policy in the terminology of Leeper (1991). We find that expansionary fiscal shocks become less effective when the government faces a high level of debt because the wealth effect on households decreases.
No takes yet. Share an insight, caveat, or question.
Jun‐Hyung Ko (2015) studied this question.
Synapse has enriched one closely related paper. Consider it for comparative context: