Fiscal multipliers and foreign holdings of public debt

Daragh Clancy, Alberto Martin, Fernando Broner and Aitor Erce

No 2255, Working Paper Series from European Central Bank

Abstract: This paper explores a natural connection between fiscal multipliers and foreign holdings of public debt. Although fiscal expansions can raise domestic economic activity through various channels, they can also have crowding-out effects if the resources used to acquire public debt reduce domestic consumption and investment. These crowding-out effects are likely to be weaker when governments have access to foreign markets to place their debt, increasing the size of multipliers. We test this hypothesis on (i) post-war US data and (ii) data for a panel of 17 advanced economies from the 1980's to the present. To do so, we assemble a novel database of public debt holdings by domestic and foreign creditors for a large set of advanced economies. We combine this data with standard measures of fiscal policy shocks and show that, indeed, the size of fiscal multipliers is increasing in the share of public debt held by foreigners. In particular, the fiscal multiplier is smaller than one when the foreign share is low, such as in the U.S. in the 1950's and 1960's and Japan today, and larger than one when the foreign share is high, such as in the U.S. and Ireland today. JEL Classification: E62, F32, F34, F36, F41, F62, F65, G15, H63

Keywords: fiscal multiplier; foreign holdings of public debt; sovereign debt (search for similar items in EconPapers)
Date: 2019-03
New Economics Papers: this item is included in nep-pke
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

Downloads: (external link)
https://www.ecb.europa.eu//pub/pdf/scpwps/ecb.wp2255~a3b6386eaa.en.pdf (application/pdf)

Related works:
Journal Article: Fiscal Multipliers and Foreign Holdings of Public Debt (2022)
Working Paper: Fiscal multipliers and foreign holdings of public debt (2021)
Working Paper: Fiscal Multipliers and Foreign Holdings of Public Debt (2018)
Working Paper: Fiscal Multipliers and Foreign Holdings of Public Debt (2018)
Working Paper: Fiscal multipliers and foreign holdings of public debt (2018)
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:ecb:ecbwps:20192255

Access Statistics for this paper

More papers in Working Paper Series from European Central Bank 60640 Frankfurt am Main, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Official Publications ().