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Contribution Details

Type Other Publication
Scope Discipline-based scholarship
Title The reluctant defaulter: A tale of high government debt
Organization Unit
  • Michel Habib
  • Jean-Charles Rochet
  • Fabrice Collard
  • English
How Published VOX
Date 2016-01-01
Abstract Text Since the Global Crisis, sovereign debt levels have exploded in many OECD countries. This column presents a new measure of government debt – maximum sustainable debt. This measure takes account of the fact that a shortfall in growth naturally increases the probability of default, while allowing for the possibility of rollover. Applications to recent data suggest that without sufficient institutional constraints, governments will generally borrow up to a level close to the maximum that can be sustained.
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