Why is reducing public debt a common macroeconomic goal?

Reducing public debt is a common macroeconomic goal because it helps maintain economic stability and fosters sustainable growth.

Public debt, also known as government debt or national debt, refers to the amount of money that a country's government owes to its creditors. It is typically the result of the government spending more than it receives in revenue. While some level of public debt can be beneficial for a country's economy, excessive debt can lead to a number of economic problems.

Firstly, high levels of public debt can lead to higher interest rates. This is because as the risk associated with lending to the government increases, creditors demand higher interest rates to compensate for this risk. Higher interest rates can discourage investment and consumption, slowing economic growth.

Secondly, high public debt can crowd out private investment. When the government borrows heavily, it can absorb most of the economy's available savings, leaving less capital for private businesses to invest. This can hinder economic growth as businesses are unable to expand or improve their productivity.

Thirdly, high public debt can lead to inflation. If the government chooses to monetise its debt by printing more money, it can lead to an increase in the overall price level, eroding the purchasing power of money. This can harm households, particularly those on fixed incomes, and create economic instability.

Lastly, high public debt can limit a government's fiscal flexibility. A significant portion of government revenue may have to be used for debt servicing, leaving less money for public services and infrastructure. This can negatively impact the quality of life for citizens and the country's long-term economic prospects.

Therefore, reducing public debt is a common macroeconomic goal. It helps to maintain economic stability by keeping interest rates at manageable levels, encouraging private investment, controlling inflation, and ensuring that the government has the fiscal flexibility to invest in public services and infrastructure. This, in turn, fosters sustainable economic growth.