Public debt and financial development

David Hauner ()

Journal of Development Economics, 2009, vol. 88, issue 1, 171-183

Abstract: We examine the role of public debt in financial development. The literature has highlighted its supportive role through providing collateral and benchmark. We contrast this "safe asset" view to a "lazy banks" view: developing banking sectors that lend mainly to the public sector may develop more slowly, because it could make banks profitable but inefficient. Results from country-level and bank-level regressions are more supportive of the "lazy banks" view, but the "safe asset" view seems to play a role at moderate levels of public debt held by banks. There is also evidence of a harmful interaction between public debt and financial repression.

Keywords: G21; H6; Public; debt; Financial; development; Bank; efficiency; Bank; profitability (search for similar items in EconPapers)
Date: 2009
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Citations: View citations in EconPapers (58)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:deveco:v:88:y:2009:i:1:p:171-183

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