Debt Ceiling: Evaluating Its Necessity, Economic Impact And Solutions

Abstract

When properly monitored and kept at levels that can be controlled, debt may actually be beneficial to the expansion and general health of an economy. On the other hand, very large volumes should be avoided at all costs. When precisely does it become something that one should want to avoid, if they are already in debt? In order to offer an answer to this issue, researcher have developed a new dataset that compares the levels of governmental debt, non-financial business debt, and personal debt in 18 countries that are members of the OECD between the years 1995 - 2022. The notion that increasing levels of debt hinder economic growth is supported by the findings of the research, which give empirical evidence for the concept. The level of the national debt should not exceed around 85 percent of GDP as the limit. The apparent meaning of this fact is that nations that are burdened by debt have a necessity to take immediate and decisive action in order to remedy their existing economic condition. This is necessary in order to correct their current economic situation. It is essential for national governments to maintain their debt levels far lower than the thresholds that are predicted for them, as this will allow them to accumulate the necessary financial cushion to deal with unanticipated occurrences, which is something that cannot be taken for granted. When researcher takes into account a wide variety of different types of debt, researcher invariably arrives to the same results. A slowdown in economic activity often occurs about the time that the level of corporate debt reaches 90 percent of GDP. In addition, researcher argue that the limit for personal debt should be somewhere around 85% of GDP; nevertheless, the precision of this estimate is rather debatable.