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

By Silvia Ardagna, Francesco Caselli, Timothy D. Lane. Social Science Research Network, 2007

454 citations recorded by the source corpus.

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.

Subfields: Economics and Econometrics

View Paper: https://www.semanticscholar.org/paper/09aa8ebe76c1f00850ac6771376c10a45a34af7d

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Citations in the corpus

The Impact of High and Growing Government Debt on Economic Growth: An Empirical Investigation for the Euro Area (2010, unknown): “26 See Alesina and Ardagna (2009).”
Fiscal Policy and the Term Structure of Interest Rates (2005, unknown): “This seems like a safe assumption for the United States in the postwar period, but it might not be such a good assumption for other countries (see Ardagna, Caselli, and Lane (2005) for an analysis of OECD countries).”
Long-Run and Short-Run Determinants of Sovereign Bond Yields in Advanced Economies (2012, unknown): “Ardagna et al. (2007) use a panel of 16 OECD countries over 1960-2002 to investigate the impact of fiscal deficit and debt on long-term government bond yields.”
The macroeconomics of fiscal consolidations in euro area countries (2010, unknown): “[5] Ardagna S.”
The Determinants of Sovereign Bond Yield Spreads in the EMU (2012, methodology): “We use a unified framework of analysis capturing simultaneously and extending the insights of the studies by Arghyrou and Kontonikas (2012) and Afonso et al.”
This Changes Everything (2020, unknown): “First, most studies find empirical support to the theoretical prediction that the level and composition of government debt and other macroeconomic factors have an impact on government bond yields and spreads (Engen and Hubbard, 2004; Kinoshita, 2006; Ardagna et al., 2007; Laubach, 2009; Hischer and ”
Sovereign bond yield spreads and sustainability: An empirical analysis of OECD countries (2019, background): “…concludes that sovereign bond spreads depend on fundamental conditions of the economy, most prominently in relation to government finances (Ardagna et al., 2007; Attinasi et al., 2009; Baldacci and Kumar, 2010; Beirne and Fratzscher, 2012; Aizenman and Hutchinson, 2013; Ghosh et al.,…”