Introduction

Abstract

After World War II, in particular during the 1970s, the politico-economic principles had been largely dominated by the Keynesian approach according to which governments must play an active role in stabilizing market economies. The latter can be achieved by public expenditures in order to raise aggregate demand, with the spending being financed by public deficits. Particularly, in times of low aggregate demand and high unemployment the government must become active in order to restore the full employment equilibrium which, then, allows to reduce outstanding public debt. In addition, according to that view public debt does not pose a problem if the government runs into debt in the home country. This holds because no resources are lost and public deficits just imply a reallocation of resources from taxpayers to bondholders.