Fiscal Discipline and the Cost of Public Debt Service: Some Estimates for OECD Countries / Silvia Ardagna, Francesco Caselli, Timothy Lane.

Format:

Book

Author/Creator:

Ardagna, Silvia.

Contributor:

National Bureau of Economic Research.

Caselli, Francesco.

Lane, Timothy.

Series:

Working Paper Series (National Bureau of Economic Research) no. w10788.

NBER working paper series no. w10788

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

Fiscal Discipline and the Cost of Public Debt Service

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2004.

Summary:

We use a panel of 16 OECD countries over several decades to investigate the effects of government debts and deficits on long-term interest rates. In simple static specifications, a one-percentage-point increase in the primary deficit relative to GDP increases contemporaneous long-term interest rates by about 10 basis points. In a vector autoregression (VAR), the same shock leads to a cumulative increase of almost 150 basis points after 10 years. The effect of debt on interest rates is non-linear: only for countries with above-average levels of debt does an increase in debt affect the interest rate. World fiscal policy is also important: an increase in total OECD-government borrowing increases each country's interest rates. However, domestic fiscal policy continues to affect domestic interest rates even after controlling for worldwide debts and deficits.

Notes:

Print version record

September 2004.