Debt & Deficit Primer (part 2). Measuring the risks of prolonged debt- financed government spending.
The important concept here is “fiscal sustainability”, which basically says that if the interest rate on the debt is less than nominal GDP growth, the relative debt burden is improving.
From Professors Cecchetti & Shoenholtz: “Ultimately, debt sustainability requires that a country’s ratio of public debt to GDP stabilize. Otherwise, debt eventually will rise above the real limit and trigger default or inflation…The debt sustainability condition states that the government’s primary surplus―the excess of government revenues over non-interest spending—must be at least as large as the stock of outstanding sovereign debt times the difference between the nominal interest rate the government has to pay and the rate of growth of nominal GDP. If it is not, then the ratio of debt to GDP will explode.”
Flattening the Debt Curve: Empirical Lessons for Fiscal Consolidation | Mercatus Center Review of studies of various countries indicate that reduced spending is more effective than tax increases to lower debt-to-GDP-ratio and minimize effects on growth.
Taleb’s Antifragile Concept and Why Debt Makes the System Fragile (FS Blog) Papers/books from Nassim Taleb address “Black Swan” or tail events in the distribution of possible outcomes (of debt); this link meant to introduce concept for further inquiry by users of this site)