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Embrace debt-to-GDP ratio, instead of rigid deficit targets

By Economic Times - 2 months ago
Debt-to-GDP ratio compares a country's debt with its productive capacity, sending policymakers more appropriate and incentive-compatible signals. When a government incurs a deficit during a period of economic slack and directs this spending towards growth-inducing capex, the resulting higher debt may lead to enhanced economic growth and productivity, ultimately improving the debt-to-GDP ratio in the long run.

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