When is debt sustainable?
AbstractThis CPB Discussion Paper proposes indicators to assess government debt sustainability. Sustainable government finances can be achieved via three main channels: fiscal responses, economic growth and financial repression. The fiscal response provides information on the long-term country specific attitude towards fiscal sustainability and is estimated using Bohn (2008)â€™s approach. We combine the estimated fiscal response with a stochastic debt simulation and calculate the probability of debt-to-GDP ratios rising above some threshold. This is applied on historical data for seven OECD countries. In particular, the probability of debt-to-GDP ratios rising by more than 20% in the next decade clearly identifies countries that have sustainability concerns: Spain, Portugal and Iceland, from those that do not: US, UK, Netherlands and Belgium. Read also: CPB Policy Brief 2013/08 'Early warning indicators for debt sustainability' .
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Bibliographic InfoPaper provided by CPB Netherlands Bureau for Economic Policy Analysis in its series CPB Discussion Paper with number 212.
Date of creation: Jun 2012
Date of revision:
Find related papers by JEL classification:
- E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
- E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
- H0 - Public Economics - - General
- H6 - Public Economics - - National Budget, Deficit, and Debt
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-06-13 (All new papers)
- NEP-CMP-2012-06-13 (Computational Economics)
- NEP-MAC-2012-06-13 (Macroeconomics)
- NEP-PBE-2012-06-13 (Public Economics)
- NEP-PUB-2012-06-13 (Public Finance)
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