Fiscal adjustment and the costs of public debt service: evidence from OECD countries

Christoph Schaltegger and Martin Weder

Applied Economics, 2014, vol. 46, issue 22, 2593-2610

Abstract: We use a panel of 21 OECD countries from 1970 to 2009 to investigate the effects of different fiscal adjustment strategies on long-term interest rates - a key fiscal indicator reflecting the costs of government debt service. As Europe's sovereign debt crisis has shown, governments confronted with high deficits and rising debt may be forced to enact fiscal adjustments in order to avoid increasing market pressure and solvency problems. Over the last four decades, such measures taken by governments in OECD countries have varied in duration, size, composition and in their success to re-establish fiscal sustainability. We find that large and expenditure-based adjustments lead to substantially lower long-term interest rates. Small and revenue-based measures do not have an effect on interest rates. Financial markets thus only seem to value strict and decisive measures - a clear sign that the government's pledge to cut the deficit is credible.

Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
http://hdl.handle.net/10.1080/00036846.2014.907479 (text/html)
Access to full text is restricted to subscribers.

Related works:
Working Paper: Fiscal Adjustment and the Costs of Public Debt Service: Evidence from OECD Countries (2010)
Working Paper: Fiscal Adjustment and the Costs of Public Debt Service: Evidence from OECD Countries (2010)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:taf:applec:v:46:y:2014:i:22:p:2593-2610

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/RAEC20

DOI: 10.1080/00036846.2014.907479

Access Statistics for this article

Applied Economics is currently edited by Anita Phillips

More articles in Applied Economics from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().