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When is debt sustainable?

Author

Listed:
  • Jasper Lukkezen

    (CPB Netherlands Bureau for Economic Policy Analysis)

  • Hugo Rojas-Romagosa

    () (CPB Netherlands Bureau for Economic Policy Analysis)

Abstract

This 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)’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' .

Suggested Citation

  • Jasper Lukkezen & Hugo Rojas-Romagosa, 2012. "When is debt sustainable?," CPB Discussion Paper 212, CPB Netherlands Bureau for Economic Policy Analysis.
  • Handle: RePEc:cpb:discus:212
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Paniagua, Jordi & Sapena, Juan & Tamarit, Cecilio, 2017. "Fiscal sustainability in EMU countries: A continued fiscal commitment?," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 50(C), pages 85-97.
    2. Engwerda, Jacob & van Aarle, Bas & Plasmans, Joseph & Weeren, Arie, 2013. "Debt stabilization games in the presence of risk premia," Journal of Economic Dynamics and Control, Elsevier, vol. 37(12), pages 2525-2546.
    3. Jasper Lukkezen & Hugo Rojas-Romagosa, 2013. "Stochastic debt sustainability indicators," Revue de l'OFCE, Presses de Sciences-Po, vol. 0(1), pages 97-121.
    4. Lees, Kirdan, 2013. "Fighting fit? Assessing New Zealand’s fiscal sustainability," NZIER Working Paper 2013/5, New Zealand Institute of Economic Research.
    5. Fabrice Collard & Michel Habib & Jean-Charles Rochet, 2015. "Sovereign Debt Sustainability In Advanced Economies," Journal of the European Economic Association, European Economic Association, vol. 13(3), pages 381-420, June.
    6. Johann Bröthaler & Michael Getzner & Gottfried Haber, 2015. "Sustainability of local government debt: a case study of Austrian municipalities," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 42(3), pages 521-546, August.
    7. Katia Berti & Eugeniu Colesnic & Cyril Desponts & Stephanie Pamies & Etienne Sail, 2016. "Fiscal Reaction Functions for European Union Countries," European Economy - Discussion Papers 2015 - 028, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.

    More about this item

    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

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