The Reluctant Defaulter: A Tale of High Government Debt

Michel Habib, Fabrice Collard and Jean Rochet

No 11299, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: We seek to account for the very high levels of public debt recently reached in many OECD countries. We do so by assuming that governments do their utmost to stave off default, which occurs only when a government fails to muster the funds needed for debt service. This distinguishes our work from existing work on sovereign debt, which has assumed that governments weigh the costs of debt service against those of default. The debt ratios we compute are quite close to prevailing levels: our baseline case has debt-to-GDP ratio slightly above 80%.

Date: 2016-05
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Working Paper: The Reluctant Defaulter: A Tale of High Government Debt (2017)
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