That Squeezing Feeling: The Interest Burden and Public Debt Stabilization

Xavier Debrun and Tidiane Kinda

No 2013/125, IMF Working Papers from International Monetary Fund

Abstract: 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.

Keywords: WP; interest payment; interest; Public debt; interest payments; fiscal consolidation; interest-payment squeeze; debt ratio; interest-payment ratio; interest bill; substitution effect; utility function; interest payments ratio; interest payment threshold; interest-payment threshold; payments ratio; debt stock; public goods; Fiscal stance; Debt service; Global (search for similar items in EconPapers)
Pages: 30
Date: 2013-05-22
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Citations: View citations in EconPapers (13)

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Journal Article: That Squeezing Feeling: The Interest Burden and Public Debt Stabilization (2016)
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