{"title":"High public debts: Are shocks or discretionary fiscal policy to blame?","authors":"Nikhil Patel, Adrian Peralta-Alva","doi":"10.1016/j.jinteco.2025.104130","DOIUrl":null,"url":null,"abstract":"<div><div>Public debt to GDP ratios have experienced significant fluctuations over both short and long horizons. Notably, the ratio spiked globally in 2020 due to the COVID-19 pandemic, before retracting substantially by 2022. To elucidate the driving forces behind these movements, we develop a structural decomposition of debt dynamics using a Structural Vector Autoregression (SVAR) identified through narrative sign restrictions. Analyzing data from 17 advanced economies since the 1980s, we find that shocks to GDP growth and interest rates collectively account for more than half of the observed annual variation in debt to GDP ratios, while discretionary fiscal policy changes contribute less than 20%. Our analysis also reveals that the primary balance multiplier on GDP is minimal. We reconcile our findings with existing literature by demonstrating that previous discrepancies arise largely from differences in shock identification methods, but also on account of cross-country heterogeneity.</div></div>","PeriodicalId":16276,"journal":{"name":"Journal of International Economics","volume":"158 ","pages":"Article 104130"},"PeriodicalIF":4.0000,"publicationDate":"2025-07-25","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":"0","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"Journal of International Economics","FirstCategoryId":"96","ListUrlMain":"https://www.sciencedirect.com/science/article/pii/S0022199625000868","RegionNum":1,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"Q1","JCRName":"ECONOMICS","Score":null,"Total":0}
引用次数: 0
Abstract
Public debt to GDP ratios have experienced significant fluctuations over both short and long horizons. Notably, the ratio spiked globally in 2020 due to the COVID-19 pandemic, before retracting substantially by 2022. To elucidate the driving forces behind these movements, we develop a structural decomposition of debt dynamics using a Structural Vector Autoregression (SVAR) identified through narrative sign restrictions. Analyzing data from 17 advanced economies since the 1980s, we find that shocks to GDP growth and interest rates collectively account for more than half of the observed annual variation in debt to GDP ratios, while discretionary fiscal policy changes contribute less than 20%. Our analysis also reveals that the primary balance multiplier on GDP is minimal. We reconcile our findings with existing literature by demonstrating that previous discrepancies arise largely from differences in shock identification methods, but also on account of cross-country heterogeneity.
期刊介绍:
The Journal of International Economics is intended to serve as the primary outlet for theoretical and empirical research in all areas of international economics. These include, but are not limited to the following: trade patterns, commercial policy; international institutions; exchange rates; open economy macroeconomics; international finance; international factor mobility. The Journal especially encourages the submission of articles which are empirical in nature, or deal with issues of open economy macroeconomics and international finance. Theoretical work submitted to the Journal should be original in its motivation or modelling structure. Empirical analysis should be based on a theoretical framework, and should be capable of replication.