Interest rate-growth differential and government debt dynamics

The change in government debt between two years equals the interest paid on the stock of debt, the primary deficit (excess of expenditure, excluding interest payments, over revenue), and other factors (deficit-debt adjustments).

Metadata

Provider:

ECB

URL:

https://www.ecb.europa.eu//pub/economic-bulletin/focus/2019/html/ecb.ebbox201902_06~0c96ee6f7c.en.html

Retrieved on:

Friday, March 22, 2019

Information

Tags:

Economy, Money, Finance, Fiscal policy, Government debt, Debt, Déficit, United States fiscal cliff, Financial crises, Debt-to-GDP ratio, External debt

Summary

Key Points:

The change in government debt between two years equals the interest paid on the stock of debt, the primary deficit (excess of expenditure, excluding interest payments, over revenue), and other factors (deficit-debt adjustments).
Theoretical models do not provide clear cut conclusions with respect to the sign and size of the interest rate-growth differential on government debt.
[4] Empirically, the relevant interest rate-growth differential for public debt dynamics, as defined above, has been positive for advanced mature economies over longer periods.