DP11299 The Reluctant Defaulter: A Tale of High Government Debt

Author(s): Fabrice Collard, Michel Antoine Habib, Jean-Charles Rochet
Publication Date: May 2016
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Programme Areas: Public Economics, Financial Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=11299

We seek to account for the very high levels of public debt recently reached in many OECD countries. We do so by assuming that governments do their utmost to stave off default, which occurs only when a government fails to muster the funds needed for debt service. This distinguishes our work from existing work on sovereign debt, which has assumed that governments weigh the costs of debt service against those of default. The debt ratios we compute are quite close to prevailing levels: our baseline case has debt-to-GDP ratio slightly above 80%.