Limits to government debt sustainability:
The recent euro area sovereign debt crisis has shown the importance of market reactions for the sustainability of debt. The objective of this paper is to calculate endogenous government debt limits given the markets assessment of the probability to default. The estimated primary balance reaction fun...
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| Format: | Elektronisch E-Book |
| Sprache: | English |
| Veröffentlicht: |
Paris
OECD Publishing
2015
|
| Schriftenreihe: | OECD Economics Department Working Papers
no.1229 |
| Schlagworte: | |
| Online-Zugang: | Volltext |
| Zusammenfassung: | The recent euro area sovereign debt crisis has shown the importance of market reactions for the sustainability of debt. The objective of this paper is to calculate endogenous government debt limits given the markets assessment of the probability to default. The estimated primary balance reaction function to growing debt has the "fiscal fatigue" property (a loosening fiscal effort makes the primary balance insufficient to support rising debt) at high debt levels. It is the combination of this feature of the primary balance reaction function with the market interest rate reaction to growing debt that determines the government debt limit beyond which debt cannot be rolled over. An application of this framework to OECD countries over the period 1985 - 2013 shows that current debt limits are high for most of the OECD thanks to particularly low current interest rates. It shows also for some countries that current debt levels are not sustainable without a change in government behaviour as compared to the past. Most importantly, the framework illustrates the state contingent nature of debt limits and therefore the vulnerability of governments to a change in macroeconomic conditions and to market reactions. |
| Beschreibung: | 1 Online-Ressource (26 p.) 21 x 29.7cm. |
| DOI: | 10.1787/5jrxv0fctk7j-en |
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| spelling | Fournier, Jean-Marc VerfasserIn aut Limits to government debt sustainability Jean-Marc, Fournier and Falilou, Fall = Les limites à la viabilité de la dette publique / Jean-Marc, Fournier et Falilou, Fall Les limites à la viabilité de la dette publique Paris OECD Publishing 2015 1 Online-Ressource (26 p.) 21 x 29.7cm. Text txt rdacontent Computermedien c rdamedia Online-Ressource cr rdacarrier OECD Economics Department Working Papers no.1229 The recent euro area sovereign debt crisis has shown the importance of market reactions for the sustainability of debt. The objective of this paper is to calculate endogenous government debt limits given the markets assessment of the probability to default. The estimated primary balance reaction function to growing debt has the "fiscal fatigue" property (a loosening fiscal effort makes the primary balance insufficient to support rising debt) at high debt levels. It is the combination of this feature of the primary balance reaction function with the market interest rate reaction to growing debt that determines the government debt limit beyond which debt cannot be rolled over. An application of this framework to OECD countries over the period 1985 - 2013 shows that current debt limits are high for most of the OECD thanks to particularly low current interest rates. It shows also for some countries that current debt levels are not sustainable without a change in government behaviour as compared to the past. Most importantly, the framework illustrates the state contingent nature of debt limits and therefore the vulnerability of governments to a change in macroeconomic conditions and to market reactions. Finance and Investment Economics Fall, Falilou MitwirkendeR ctb FWS01 ZDB-13-SOC FWS_PDA_SOC https://doi.org/10.1787/5jrxv0fctk7j-en Volltext |
| spellingShingle | Fournier, Jean-Marc Limits to government debt sustainability Finance and Investment Economics |
| title | Limits to government debt sustainability |
| title_alt | Les limites à la viabilité de la dette publique |
| title_auth | Limits to government debt sustainability |
| title_exact_search | Limits to government debt sustainability |
| title_full | Limits to government debt sustainability Jean-Marc, Fournier and Falilou, Fall = Les limites à la viabilité de la dette publique / Jean-Marc, Fournier et Falilou, Fall |
| title_fullStr | Limits to government debt sustainability Jean-Marc, Fournier and Falilou, Fall = Les limites à la viabilité de la dette publique / Jean-Marc, Fournier et Falilou, Fall |
| title_full_unstemmed | Limits to government debt sustainability Jean-Marc, Fournier and Falilou, Fall = Les limites à la viabilité de la dette publique / Jean-Marc, Fournier et Falilou, Fall |
| title_short | Limits to government debt sustainability |
| title_sort | limits to government debt sustainability |
| topic | Finance and Investment Economics |
| topic_facet | Finance and Investment Economics |
| url | https://doi.org/10.1787/5jrxv0fctk7j-en |
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