TY  - JOUR
AU  - Ardagna,Silvia
AU  - Caselli,Francesco
AU  - Lane,Timothy
TI  - Fiscal Discipline and the Cost of Public Debt Service: Some Estimates for OECD Countries
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 10788
PY  - 2004
Y2  - September 2004
UR  - http://www.nber.org/papers/w10788
L1  - http://www.nber.org/papers/w10788.pdf
N1  - Author contact info:
Silvia Ardagna
Global Economics
Global Investment Research
130 Peterborough Court
133 Fleet Street
London EC4A 2BB
United Kingdom
Tel: 44 (0) 20 7051 0584
E-Mail: ardagna@gmail.com

Francesco Caselli
Department of Economics
London School of Economics
Houghton Street
London WC2A 2AE
UNITED KINGDOM
Tel: (44) (0) 2079557498
E-Mail: f.caselli@lse.ac.uk
AB  - 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.
ER  -