When is debt sustainable?
Jasper Lukkezen and
Hugo Rojas-Romagosa ()
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Jasper Lukkezen: CPB Netherlands Bureau for Economic Policy Analysis
CPB Discussion Paper from CPB Netherlands Bureau for Economic Policy Analysis
This CPB Discussion Paper proposes indicators to assess government debt sustainability. Sustainable government finances can be achieved via three main channels: fiscal responses, economic growth and financial repression. The fiscal response provides information on the long-term country specific attitude towards fiscal sustainability and is estimated using Bohn (2008)’s approach. We combine the estimated fiscal response with a stochastic debt simulation and calculate the probability of debt-to-GDP ratios rising above some threshold. This is applied on historical data for seven OECD countries. In particular, the probability of debt-to-GDP ratios rising by more than 20% in the next decade clearly identifies countries that have sustainability concerns: Spain, Portugal and Iceland, from those that do not: US, UK, Netherlands and Belgium.Read also: CPB Policy Brief 2013/08 'Early warning indicators for debt sustainability'.
JEL-codes: E4 E6 H0 H6 (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:cpb:discus:212.rdf
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