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The Reluctant Defaulter: A Tale of High Government Debt

Author

Listed:
  • Michel Habib

    (University of Zurich)

  • Fabrice Collard

    (University of Berne)

  • Jean-Charles Rochet

    (University of Zurich, University of Toulouse I, and Swiss Finance Institute)

Abstract

We seek to account for the very high levels of public debt recently reached in many OECD countries. We do so by assuming that governments do their utmost to stave off default, which occurs only when a government fails to muster the funds needed for debt service. This distinguishes our work from existing work on sovereign debt, which has assumed that governments weigh the costs of debt service against those of default. The debt ratios we compute are quite close to prevailing levels: our baseline case has debt-to-GDP ratio slightly above 80%.

Suggested Citation

  • Michel Habib & Fabrice Collard & Jean-Charles Rochet, 2017. "The Reluctant Defaulter: A Tale of High Government Debt," Swiss Finance Institute Research Paper Series 17-39, Swiss Finance Institute.
    • Handle: RePEc:chf:rpseri:rp1739
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    2. Beqiraj, Elton & Fedeli, Silvia & Forte, Francesco, 2018. "Public debt sustainability: An empirical study on OECD countries," Journal of Macroeconomics, Elsevier, vol. 58(C), pages 238-248.
    3. Robertson, D. & Tambakis, D., 2016. "Long-Run Debt Ratios with Fiscal Fatigue," Cambridge Working Papers in Economics 1674, Faculty of Economics, University of Cambridge.
    4. Stangebye, Zachary R., 2020. "Beliefs and long-maturity sovereign debt," Journal of International Economics, Elsevier, vol. 127(C).
    5. Martin Guzman & Domenico Lombardi, 2018. "Assessing the Appropriate Size of Relief in Sovereign Debt Restructuring," Documentos de trabajo del Instituto Interdisciplinario de Economía Política IIEP (UBA-CONICET) 2018-26, Universidad de Buenos Aires, Facultad de Ciencias Económicas, Instituto Interdisciplinario de Economía Política IIEP (UBA-CONICET).

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