Fiscal Discipline and the Cost of Public Debt Service: Some Estimates for OECD Countries

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Fiscal Discipline and the Cost of Public Debt Service: Some Estimates for OECD Countries

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Title: Fiscal Discipline and the Cost of Public Debt Service: Some Estimates for OECD Countries
Author: Ardagna, Silvia; Lane, Timothy; Caselli, Francesco

Note: Order does not necessarily reflect citation order of authors.

Citation: Ardagna, Silvia, Francesco Caselli, and Timothy Lane. 2006. Fiscal Discipline and the Cost of Public Debt Service: Some Estimates for OECD Countries. The B.E. Journal of Macroeconomics 7(1).
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Abstract: 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.
Published Version: http://dx.doi.org/10.2202/1935-1690.1417
Terms of Use: This article is made available under the terms and conditions applicable to Other Posted Material, as set forth at http://nrs.harvard.edu/urn-3:HUL.InstRepos:dash.current.terms-of-use#LAA
Citable link to this page: http://nrs.harvard.edu/urn-3:HUL.InstRepos:2579739
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