Government borrowing cost and balance sheets: do assets matter?

Jemima Peppel-Srebrny

No 860, Economics Series Working Papers from University of Oxford, Department of Economics

Abstract: Government net worth – total assets less liabilities – has declined considerably relative to national income in a number of OECD countries in recent decades, including the United States, the United Kingdom, Japan and Germany. Notably, however, in thinking about the links between fiscal policy and bond markets, the focus of policy and academic debates has tended to be on the liabilities side of the government balance sheet. Typically, not much attention has been paid to the extent to which any increase in government debt is accompanied by government asset accumulation and hence affects government net worth. Using novel data on both sides of the government balance sheet both for a panel of OECD countries in recent decades and for the United States over the long term, we provide panel data and time series-based evidence that for bond markets, not all government debt is created equal: for explaining government borrowing cost empirically, (i) government assets are significant in addition to government liabilities, and (ii) it is government net worth rather than government liabilities that matters when both are included. The central country-specific fiscal factor driving bond yields hence appears to be government net worth.

Keywords: Government debt; government assets; fiscal policy; long-term interest rates; OECD countries; United States (search for similar items in EconPapers)
JEL-codes: E44 E62 H54 H63 (search for similar items in EconPapers)
Date: 2018-10-18
New Economics Papers: this item is included in nep-acc and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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