Understanding that public debt is an income transfer from the future to the present is crucial to its analysis

Increasing the public debt amounts to transferring income from the future (when the debt will have to be repaid) to the present (when the debt enables an increase in economic agents’ income). To determine whether it is optimal to increase the public debt, it is therefore necessary to know whether it is optimal to transfer income from the future to the present: This is the case if production (and therefore income) is depressed today and higher in the future (this is the cyclical argument); It is the case if the public debt finances public spending whose return (in terms of generating additional income or increasing well-being irrespective of future income) is higher than the interest rate on the public debt and economic agents’ rate of preference for the present; It is not the case if the income level is structurally depressed in the future (for example by population ageing); the public debt should then be reduced instead. These arguments suggest that once the COVID crisis is over, public debt should be limited to financing efficient public spending in terms of income or related to the energy transition.