Other public policy goals may justify an increase in government debt. These include the use of automatic stabilisers and/or discretionary fiscal measures to stabilise macroeconomic fluctuations. In addition, smoothing the impact of targeted changes in policy to ensure structural vulnerabilities, such as economic inequality, are addressed without the need for large and/or immediate adjustments to taxation and expenditure.
Higher debt, however, can limit room for manoeuvre in future downturns. When government budgets come under pressure, public investment often experiences the largest cuts. Elevated debt increases sovereigns’ exposure to fluctuations in financial market sentiment, especially those with shorter maturity structures.