Fiscal Sustainability and Low Interest Rates: A Note

Martin Werding

No 8861, CESifo Working Paper Series from CESifo

Abstract: In this paper, I demonstrate that an indicator which is commonly used to assess the long-term fiscal sustainability of public finances in EU member states (“S2”) is also defined if government borrowing rates are assumed to be permanently lower than the growth rate of GDP. I illustrate this finding based on simulations prepared for the Fifth Sustainability Report published by the German Federal Ministry of Finance. In addition, I discuss the interpretation of the indicator in a low-interest environment and the assumption that relevant interest rates continue to be low if there are substantial challenges for fiscal sustainability, e.g., through demographic ageing.

Keywords: public budget; public debt; fiscal sustainability; interest rates (search for similar items in EconPapers)
JEL-codes: E43 H60 J11 (search for similar items in EconPapers)
Date: 2021
New Economics Papers: this item is included in nep-eec and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_8861

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