The Motives to Borrow

66 Pages Posted: 22 May 2019

See all articles by Antonio Fatás

Antonio Fatás

INSEAD; Centre for Economic Policy Research (CEPR); ABFER

Atish R. Ghosh

International Monetary Fund (IMF) - Policy Development and Review Department

Ugo Panizza

Graduate Institute of International and Development Studies (IHEID) - Department of Economics

Andrea Presbitero

International Monetary Fund (IMF)

Date Written: May 2019

Abstract

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. 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.

Keywords: Fiscal policy, political economy, public debt

JEL Classification: E62, H62, H63, P16

Suggested Citation

Fatas, Antonio and Ghosh, Atish R. and Panizza, Ugo and Presbitero, Andrea, The Motives to Borrow (May 2019). CEPR Discussion Paper No. DP13735. Available at SSRN: https://ssrn.com/abstract=3391082

Antonio Fatas (Contact Author)

INSEAD ( email )

1 Ayer Rajah Avenue
Singapore, 138676
Singapore
+6567995384 (Phone)

HOME PAGE: http://faculty.insead.edu/fatas

Centre for Economic Policy Research (CEPR)

London
United Kingdom

ABFER ( email )

BIZ 2 Storey 4, 04-05
1 Business Link
Singapore, 117592
Singapore

Atish R. Ghosh

International Monetary Fund (IMF) - Policy Development and Review Department ( email )

700 19th St. NW
Washington, DC 20431
United States

Ugo Panizza

Graduate Institute of International and Development Studies (IHEID) - Department of Economics ( email )

Geneva Avenue de la Paix 11A
Geneva, 1202
Switzerland

Andrea Presbitero

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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