Ardagna, Silvia, Caselli, Francesco and Lane, Timothy (2005) Fiscal discipline and the cost of public debt service: some estimates for OECD countries. 670. Centre for Economic Performance, London School of Economics and Political Science, London, UK.
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We use a panel of 16 OECD countries over several decades to investigate the effects of government debts and deficits on long-term interest rates. In simple static specifications, a one-percentage-point increase in the primary deficit relative to GDP increases contemporaneous long-term interest rates by about 10 basis points. In a vector autoregression (VAR), the same shock leads to a cumulative increase of almost 150 basis points after 10 years. The effect of debt on interest rates is non-linear: only for countries with above-average levels of debt does an increase in debt affect the interest rate. World fiscal policy is also important: an increase in total OECD-government borrowing increases each country’s interest rates. However, domestic fiscal policy continues to affect domestic interest rates even after controlling for worldwide debts and deficits.
|Item Type:||Monograph (Discussion Paper)|
|Additional Information:||© 2005 S. Ardagna, F. Caselli and T. Lane|
|Library of Congress subject classification:||H Social Sciences > HJ Public Finance|
|Journal of Economic Literature Classification System:||E - Macroeconomics and Monetary Economics > E6 - Macroeconomic Policy Formation, Macroeconomic Aspects of Public Finance, Macroeconomic Policy, and General Outlook > E62 - Fiscal Policy; Public Expenditures, Investment, and Finance; Taxation
H - Public Economics > H6 - National Budget, Deficit, and Debt > H62 - Deficit; Surplus
E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E44 - Financial Markets and the Macroeconomy
|Sets:||Collections > Economists Online
Research centres and groups > Centre for Economic Performance (CEP)
Departments > Economics
|Date Deposited:||28 Feb 2008|
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