The Motives to Borrow

Antonio Fatas, Atish Ghosh (), Ugo Panizza and Andrea Presbitero

No 2019/101, IMF Working Papers from International Monetary Fund

Abstract: Governments issue debt for good and bad reasons. While the good reasons—intertemporal tax-smoothing, fiscal stimulus, and asset management—can explain some of the increases in public debt in recent years, they cannot account for all of the observed changes. Bad reasons for borrowing are driven by political failures associated with intergenerational transfers, strategic manipulation, and common pool problems. These political failures are a major cause of overborrowing though budgetary institutions and fiscal rules can play a role in mitigating governments’ tendencies to overborrow. While it is difficult to establish a clear causal link from high public debt to low output growth, it is likely that some countries pay a price—in terms of lower growth and greater output volatility—for excessive debt accumulation.

Keywords: WP; government debt; financial crisis; interest rate; debt market; economic growth; government spending; monetary policy; Sovereign Debt; Political Economy; Fiscal Policy; Growth; debt accumulation; debt level; borrowing needs; debt explosion; long-term debt; government fall; government debt level; indexed debt; governments' debt-sustainability threshold; debt vulnerability; successor government; Government debt management; Public investment spending; Global; debt ratio (search for similar items in EconPapers)
Pages: 53
Date: 2019-05-10
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Citations: View citations in EconPapers (14)

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