Title: Fiscal discipline and the cost of public debt service
Description: "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"--National Bureau of Economic Research web site.
Subjects: Debt service, Econometric models, Fiscal policy, Organisation for Economic Co-operation and Development, Public Debts
Places: OECD countries