Ardagna, SilviaCaselli, FrancescoLane, Timothy2009-02-092007Ardagna, 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).1555-0486http://nrs.harvard.edu/urn-3:HUL.InstRepos:2579739We 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.en-USJournal Article10.2202/1935-1690.1417