That Squeezing Feeling : The Interest Burden and Public Debt Stabilization / Xavier Debrun, Tidiane Kinda.

Format:

Book

Government document

Author/Creator:

Debrun, Xavier.

Contributor:

Kinda, Tidiane.

Series:

IMF Working Papers; Working Paper ; No. 2013/125

IMF Working Papers

Language:

English

Subjects (All):

Interest.

Debts, Public--Management.

Debts, Public.

Physical Description:

1 online resource (31 p.)

Place of Publication:

Washington, D.C. : International Monetary Fund, 2013.

Language Note:

English

Summary:

The paper explores the extent to which the pressure of debt service on other spending items may push governments to embark on fiscal consolidation beyond what is strictly necessary to secure solvency. The empirical analysis identifies thresholds of interest bill indicators beyond which governments appear to shift to policies aimed at durably curbing the debt trajectory. Hence, in the current context of high inherited public debts, countries experiencing rising borrowing costs and interest payments would be more likely to enact more aggressive fiscal consolidations than warranted by strict solvency concerns. Conversely, those benefiting from persistently low interest rates despite rising debt stocks would likely opt for a more gradual fiscal consolidation path than what solvency considerations would normally dictate.

Contents:

Cover; Contents; I. Introduction; II. High Debt Legacy, The Rate of Interest and Optimal Fiscal Policy; III. Empirical Analysis; A. Methodology; B. Interest Payments and Debt: Stylized Facts; Figure; 1. Public Debt to GDP and Interest Expenditure Ratios; Tables; 1. Interest Payments Ratios and Debt Level: Spline Fixed-Effect Regressions; IV. Debt Stabilization: The Role of the Interest Burden; A. The "Augmented" Bohn Regressions; 2. Conventional Fiscal Reaction Function (1980-2010, unbalanced panel); 3. Augmented Fiscal Reaction Function with Interest Payments Ratios

B. Borrowing Costs or Debt Overhang?C. Omitted Variables; 4. Augmented Fiscal Reaction Function with Effective Interest Rate; 5. Augmented Fiscal Reaction Function: Control for Global Risk Appetite; 6. Augmented Fiscal Reaction Functions: Control for External Default; D. Debt Targeting; 7. Augmented Fiscal Reaction Functions: Control for Pre-Euro Accession; E. Threshold Analysis; 8. Threshold Effect: Augmented Fiscal Reaction Function; V. Summary and Conclusion; Appendix; Data Sources; Appendix Tables; A.1. Unit Root Tests

A.2. Interest Payments Ratios and Debt Level: Non-linearity with Squared TermA 3. Augmented Fiscal Reaction Functions: With time dummies; A 4. Threshold Effect: Augmented Fiscal Reaction Function with time dummies; References

Notes:

Description based upon print version of record.

Includes bibliographical references.

Description based on print version record.

ISBN:

9781484327326

1484327322

9781484364642

1484364643

9781484362143

1484362144