What fiscal policy in an environment of very low interest rates? The role of the return on private sector capital

The debate is now very intense on the effect of very low interest rates on fiscal policies: can more expansionary fiscal policies be conducted currently? If interest rates are low, fiscal solvency is ensured even when public debt ratios are high: the risk of a debt crisis disappears. But we should not forget another mechanism: if the public debt is higher, a large share of savings is invested in public debt, and a smaller share of savings is invested in corporate capital or in housing capital. This is detrimental if the return on private sector capital is high, but not if is low. The fall in the return on private sector capital is therefore a significant factor that makes it possible to conduct more expansionary fiscal policies in the low interest rate environment. But in OECD countries, on the contrary, the return on private sector capital is rising, which therefore means savings should not be used to finance public debt.