Public debt and Financial development: A theoretical exploration
AbstractThis paper proposes an analytical framework to examine the role of public debt in financial development, which remains largely unexplored in the existing literature. We find that in countries where the banking sector extends substantial credit to government, public debt is likely to harm financial development, with unfavourable implications for economic activity. As such, our results provide an alternative explanation for the ‘contractionary fiscal expansions’. We also show that the lower the financial depth, the greater the adverse effects of public borrowing on financial development and macroeconomic outcomes.
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Bibliographic InfoPaper provided by Department of Economics, University of York in its series Discussion Papers with number 10/14.
Date of creation: Jun 2010
Date of revision:
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Postal: Department of Economics and Related Studies, University of York, York, YO10 5DD, United Kingdom
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Financial sector; credit to government; public debt.;
Other versions of this item:
- Ismihan, Mustafa & Ozkan, F. Gulcin, 2012. "Public debt and financial development: A theoretical exploration," Economics Letters, Elsevier, vol. 115(3), pages 348-351.
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
- E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
- H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-07-03 (All new papers)
- NEP-FDG-2010-07-03 (Financial Development & Growth)
- NEP-MAC-2010-07-03 (Macroeconomics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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