The Motives to Borrow

By A. Fatas, Atish R. Ghosh, Ugo Panizza, Andrea F Presbitero

May 10, 2019

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A. Fatas, Atish R. Ghosh, Ugo Panizza, and Andrea F Presbitero. The Motives to Borrow, (USA: International Monetary Fund, 2019) accessed September 18, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

Governments issue debt for good and bad reasons. While the good reasons—intertemporal tax-smoothing, fiscal stimulus, and asset management—can explain some of the increases in public debt in recent years, they cannot account for all of the observed changes. Bad reasons for borrowing are driven by political failures associated with intergenerational transfers, strategic manipulation, and common pool problems. These political failures are a major cause of overborrowing though budgetary institutions and fiscal rules can play a role in mitigating governments’ tendencies to overborrow. While it is difficult to establish a clear causal link from high public debt to low output growth, it is likely that some countries pay a price—in terms of lower growth and greater output volatility—for excessive debt accumulation.

Subject: Expenditure, Fiscal policy, Government debt management, Public debt, Public financial management (PFM), Public investment spending

Keywords: Borrowing needs, Debt accumulation, Debt explosion, Debt level, Debt market, Debt ratio, Debt vulnerability, Economic growth, Financial crisis, Fiscal Policy, Global, Government debt, Government debt level, Government debt management, Government fall, Government spending, Governments' debt-sustainability threshold, Growth, Indexed debt, Interest rate, Long-term debt, Monetary policy, Political Economy, Public investment spending, Sovereign Debt, Successor government, WP

Publication Details

Pages:

53
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2019/101
Stock No:

WPIEA2019101
ISBN:

9781498312103
ISSN:

1018-5941

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