The study analyses on debt and debt relations of individuals and the public sector in a welfare state. It characterizes the properties of private and public debt and implicit public liabilities, studies household debt in a life-cycle perspective, assesses fiscal adjustment and determinants of risk premia of public debt in various countries, explores the interaction of explicit and implicit public debt and surveys financial crises and the socialization of private debts.
Our study aims to analyze debt and debt relations of individuals and the public sector of a welfare state. We start by studying the concepts of private debt, explicit public debt and implicit public liabilities. We ask what are the key characteristics of private and public debt and how do they differ from each other. We then study in more detail household debt in Finland. Analysis of fiscal adjustments and sovereign risk premiums of public debt in euro area and other OECD countries provides comparatives aspects. We also study the fiscal sustainability of a welfare state taking into account both public financial and implicit debt and the new EU policy rules. Finally, we consider financial crises and situations where private financial debts have become part of public financial debt. Thereby we study the major determinants of public deficits and debts: large crisis, fiscal adjustment processes, long-term challenges related to population ageing and the EU-rules.
We have divided this overall research project into the following 5 elements.
These elements complement each other in several ways: The first element provides a theoretical background for the following elements. Household debt is used as one of the determinants of sovereign risk premium in the third element. In addition, some of the results from the third element are directly used as inputs in the sustainability analysis that is carried out in the fourth element. Finally, one output of this project is a book that focuses on policy implications of our research. There we aim at providing policy conclusions that take into account all the different types of debt relations analyzed in these elements.
The project is done with collaboration of Jyväskylä University School of Business and Economics.