IDEAS home Printed from
MyIDEAS: Log in (now much improved!) to save this paper

Explaining the Interest-Rate-Growth Differential Underlying Government Debt Dynamics

  • David Turner
  • Francesca Spinelli
Registered author(s):

    The differential between the interest rate paid to service government debt and the growth rate of the economy is a key concept in assessing fiscal sustainability. Among OECD economies, this differential was unusually low for much of the last decade compared with the 1980s and the first half of the 1990s. This paper investigates the reasons behind this profile using panel estimation on 23 OECD economies. The results suggest that the fall is partly explained by lower inflation volatility associated with the adoption of monetary policy regimes which credibly target low inflation, which might be expected to continue. However, the low differential is also partly explained by factors which are likely to be reversed in the future, including very low policy rates, the “global savings glut” and the effect which the European Monetary Union had in reducing long-term interest differentials in the pre-crisis period. The differential is also likely to rise in the future because the number of countries which have debt-to-GDP ratios above a threshold at which there appears to be an effect on sovereign risk premia has risen sharply. Moreover, debt is projected to increasingly rise above this threshold in most of these countries. Expliquer le différentiel entre taux d'intérêt et croissance qui sous-tend la dynamique de la dette publique Le différentiel entre le taux d’intérêt payé sur la dette publique et le taux de croissance de l’économie est un concept clé pour évaluer la viabilité budgétaire. Parmi les économies de l’OCDE, ce différentiel a été exceptionnellement bas pendant une grande partie de la décennie passée en comparaison des années 80 et de la première moitié des années 90. Le présent document cherche à expliquer ce profil à l’aide d’une estimation en panel réalisée sur 23 pays de l’OCDE. Les résultats semblent indiquer que la diminution de l’écart s’explique en partie par une plus faible volatilité de l’inflation associée à l’adoption de régimes de politique monétaire visant de façon crédible un taux d’inflation peu élevé, un facteur qui paraît devoir persister. Cependant, cet écart peu marqué est aussi imputable, pour partie, à des facteurs qui vont sans doute s’inverser dans l’avenir, notamment des taux directeurs très bas, l’ « excédent mondial d’épargne » et l’impact de la réduction des différentiels de taux d’intérêt à long terme opérée au sein de l’Union monétaire européenne au cours de la période qui a précédé la crise. L’écart pourrait aussi se creuser dans l’avenir du fait de la forte augmentation du nombre de pays dont le ratio dette-PIB dépasse un seuil qui, apparemment, déclenche un effet sur la prime de risque souverain. De plus, la dette va sans doute dépasser de plus en plus largement ce seuil dans la plupart de ces pays.

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

    File URL:
    Download Restriction: no

    Paper provided by OECD Publishing in its series OECD Economics Department Working Papers with number 919.

    in new window

    Date of creation: 19 Dec 2011
    Date of revision:
    Handle: RePEc:oec:ecoaaa:919-en
    Contact details of provider: Postal:
    2 rue Andre Pascal, 75775 Paris Cedex 16

    Phone: 33-(0)-1-45 24 82 00
    Fax: 33-(0)-1-45 24 85 00
    Web page:

    More information through EDIRC

    No references listed on IDEAS
    You can help add them by filling out this form.

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    When requesting a correction, please mention this item's handle: RePEc:oec:ecoaaa:919-en. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.