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Impact of sovereign debt maturity on fiscal sustainability
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Orientador(es)
Resumo(s)
In addition to the significant increase in the public debt ratio over the last decades, another major
change has been the substantial increase in the maturity of sovereign borrowing. This study is
the first to investigate the impact of the term structure of public debt on fiscal sustainability. We
adopt the widely used backward-looking measure of fiscal sustainability – fiscal responsiveness
as proposed by Bohn (1998). Using data from De Graeve and Mazzolini (2023) and focusing
on a sample of 19 most developed countries, we demonstrate that sovereign borrowing with
maturity above 10 years significantly reduces fiscal responsiveness. Conversely, public debt
with maturity between 3 and 5 years, which roughly aligns with the electoral cycle in many
countries, is associated with the highest responsiveness of the primary balance to public debt.
The findings indicate that the increase of long-term public debt since the beginning of this
century has contributed to reducing fiscal responsiveness by half. Further analysis indicates that
unconventional monetary policy, by suppressing yields at longer maturities, has likely played a
key role in the discovered relationship. However, monetary easing has not been the sole factor
explaining the negative impact of longer maturity of public debt on fiscal sustainability
Descrição
Palavras-chave
fiscal sustainability public debt debt maturity interest rate
Contexto Educativo
Citação
Afonso, António ... [et al.] (2024). "Impact of sovereign debt maturity on fiscal sustainability". REM Working paper series, nº 0358/2024
Editora
ISEG – REM (Research in Economics and Mathematics)