This paper seeks to identify the conditions under which raising public investment can sustainably lift growth without deteriorating public finances. To do so, it relies on a range of simulations using three different macro-structural models. According to the simulations, OECD governments could...

To what extent can public deficits increase without putting fiscal sustainability at risk, given the specific current macroeconomic situation of protracted low growth and low interest rates, combined with relatively high government debt levels? The answer depends on many factors, such as the...

This paper investigates the effect of structural characteristics on debt limits of middle income countries. Two equations relate the probability of default to the interest rate. First, the probability of default is estimated with a logit model. Second, the assumption of non-arbitrage opportunity...

This paper provides robust empirical evidence that government effectiveness is a key determinant of sovereign defaults. Government effectiveness is measured by a broad-based perception index of the Worldwide Governance Indicators database (WGI) disseminated by the World Bank. Public debt and...

This paper compares supply and demand to assess to what extent there can be a market for GDP-linked bonds (GLBs). For the government side, simulations illustrate the debt-stabilisation property of GLBs. These simulations consider shock persistence with a VAR structure and large events with...

The recent euro area sovereign debt crisis has shown the importance of market reactions for the sustainability of debt. The objective of this paper is to calculate endogenous government debt limits given the markets assessment of the probability to default. The estimated primary balance reaction...

The sharp rise in debt experienced by most OECD countries raises questions about the prudent debt level countries should target. It also raises questions about the fiscal frameworks needed to reach them and to accommodate cyclical fluctuations along the path towards a prudent debt target. The...

In relation to GDP, India's public debt and interest payments are high compared with most other emerging economies and rating agencies have put India's sovereign debt at the lowest investment grade. On the other hand, India benefits from strong economic growth and needs to increase spending on...