The Coming Great Repression? New Measures and a Century of Evidence

Governments have historically used financial repression to reduce debt and fiscal pressures, yet few systematic measures of repression exist. To fill this gap, we introduce two quantity-based repression indicators grounded in a structural portfolio-choice model, exploiting the gap in government-bond demand between captive and non-captive investors. A narrow fiscal indicator captures pressure on banks to hold government bonds. A consolidated measure adds the perimeter of central bank liabilities. Applying our measures to a novel dataset of 17 advanced economies since 1920, we find that financial repression has been a persistent feature of modern history, peaking after World War II, receding during the capital account liberalization era, and rising again after the Global Financial Crisis. Our measures correlate with conditions typically associated with repression—such as high debt burdens and restricted capital mobility—along with crowding out of private investment and credit. Using a debt decomposition framework, we show that repression was a major driver of debt reduction after World War II, generating larger fiscal savings than traditional seigniorage, and has again generated fiscal savings since the Global Financial Crisis. With the conditions historically associated with elevated repression present today, our evidence suggests that financial repression may see increased use going forward.