Fiscal discipline and the cost of public debt service: some estimates for OECD countries

Silvia Ardagna (), Francesco Caselli () and Timothy Lane ()
Additional contact information
Silvia Ardagna: Department of Economics, Harvard University, Littauer Center, Cambridge, MA 02138, USA., http://www.fas.harvard.edu/home/
Timothy Lane: Policy Development and Review Department, IMF, 700 19th St.NW,Washington, DC 20431, USA., http://www.imf.org/external/index.htm

No 411, Working Paper Series from European Central Bank

Abstract: We use a panel of 16 OECD countries over several decades to investigate the effects of gov- ernment 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 contempora- neous 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. How- ever, domestic fiscal policy continues to affect domestic interest rates even after controlling for worldwide debts and deficits.

Keywords: Government deficit; public debt; long-term interest rates. (search for similar items in EconPapers)
JEL-codes: E62 E44 H62 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-mac and nep-pbe
Date: 2004-11
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Related works:
Working Paper: Fiscal Discipline and the Cost of Public Debt Service: Some Estimates for OECD Countries (2004)
Working Paper: Fiscal Discipline and the Cost of Public Debt Service: Some Estimates for OECD Countries (2004)
Working Paper: Fiscal Discipline and the Cost of Public Debt Service: Some Estimates for OECD Countries (2005)
Working Paper: Fiscal Discipline and the Cost of Public Debt Service: Some Estimates for OECD Countries (1998)
Journal Article: Fiscal Discipline and the Cost of Public Debt Service: Some Estimates for OECD Countries (2007)
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