Do Interest-growth Differentials Affect Fiscal Policy? Evidence for Advanced Economies


Philipp Heimberger

wiiw Working Paper No. 230, October 2023
24 pages including 5 Tables and 1 Figure

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This paper analyses the link between discretionary fiscal policy and interest-growth differentials (r-g). Panel regressions based on a dataset for 20 advanced countries over the years 1990-2019 reveal no evidence of a systematic linear relationship between fiscal policy and r-g. However, more unfavourable r-g differentials are linked more strongly to a tighter fiscal stance when public-debt-to-GDP ratios are higher – but only in the euro area, not in advanced stand-alone countries issuing government debt in their own currency.


Keywords: Public debt, fiscal deficits, interest-growth differentials, fiscal policy

JEL classification: E43, E62, F33

Countries covered: European Union, OECD

Research Areas: Macroeconomic Analysis and Policy