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Authors
Advisor(s)
Abstract(s)
Conditions of fiscal sustainability have been widely studied in the literature. Fiscal reaction
functions or cointegration between government revenues and expenditures are two
approaches that economists have been paying their attention, not only on a theoretical
perspective, but also empirically assessing the sustainability of several economies during
different timespans. Whereas a predominant focus has been attributed to primary deficits,
little attention has been dedicated to government financial assets contribution to
government debt paths. Given that government financial assets represent a large proportion
of gross debt accumulation, we enquire about their role on government debt leveraging of
economic growth over interest rates, focusing on a channel of gross debt, investment,
external balance and ratings, in 27 European Union economies during the period from 2000
to 2022. Large heterogeneities in the statistical characteristics of the series and impacts of
financial assets on interest rate-growth rate differentials call for a closer attention to
financial assets on a granular approach at individual country level, rather than on the
aggregate. Our results highlight the importance of government financial assets holdings to
the short and long-run debt trajectories, enhancing or potentially undermining gains from
primary deficits consolidation efforts and consequently on the differentials between interest
rates and output growth.
Description
Keywords
Public debt Stock Flow Adjustments Financial Assets Holdings ARDL PMG
Pedagogical Context
Citation
Alves, José e Clarisse Wagner (2024). "Leveraging interest-growth differentials : hidden effects of government financial assets in the European Union". REM Working paper series, nº 0307/2024
Publisher
ISEG - REM - Research in Economics and Mathematics