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The great recession is just behind us, but economists are already busy debating whether rich countries have the tools to fight off the next slump.A central question is therefore to what extent the high levels of debt racked up since 2008 will limit what governments can do.When a government in a highly indebted country engages in fiscal stimulus, the ratio between debt and gross domestic product becomes higher permanently, but the increase is tiny.Whether a high-debt country can engage in fiscal expansion during a slump will likely depend on a number of other factors.Auerbach and Gorodnichenko acknowledge this risk when they say that "bridges to nowhere, 'pet projects' and other wasteful spending can outweigh any benefits of countercyclical fiscal policy". The trouble for many high-debt countries is that they do not have much credibility that they will spend responsibly or cut when possible.Most likely, the ability for high-debt countries to engage in fiscal stimulus during a bust may well depend on the central bank.
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