Collard, Fabrice, Habib, Michel, Rochet, Jean-Charles, (2016), “The reluctant defaulter: A tale of high government debt”, Voxeu, 13 July
Since the Global Crisis, sovereign debt levels have exploded in many OECD countries. This column presents a new measure of government debt – maximum sustainable debt. This measure takes account of the fact that a shortfall in growth naturally increases the probability of default, while allowing for the possibility of rollover. Applications to recent data suggest that without sufficient institutional constraints, governments will generally borrow up to a level close to the maximum that can be sustained.
Relevant Posts
- Eurostat/Structure of government debt in 2015: Long-term initial maturities largely prevail among EU Member States/125/2016 – 21 June 2016
- Battaglini, Marco, Nunnari, Salvatore, Palfrey, Thomas R, (2016), “The Political Economy of Public Debt: A Laboratory Study”, Centre for Economic Policy Research, June