ABSTRACT
This chapter examines the impact that financial crises have had on public debt over the past 140 years. It argues that the findings add an important new element to conventional narratives of public-debt dynamics in the twentieth century. While historically public-debt dynamics in the Western world have reflected the costs of fighting major wars, the debt build-up in the second half of the twentieth century stands out as the first marked increase of public-sector debt ratios in peacetime. The link between the size of the financial sector and the fiscal fall-out from crises should be taken into account in the current debate about the causes of high public debt and the regulation of the financial sector. From both an economic and political point of view, one can question the wisdom of government activism in the wake of financial crises. The economic effects of stimulus programmes especially remain hotly debated amongst economists.
