Fiscal multipliers and foreign holdings of public debt

This paper explores a natural connection between fiscal multipliers and foreign holdings of public debt. Although fiscal expansions can raise domestic economic activity through various channels, they can also have crowding-out effects if the resources used to acquire public debt reduce domestic cons...

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Authors: Broner, Fernando, Clancy, Daragh, Erce, Aitor, Martin, Alberto, 1974-
Format: article
Status:Versión aceptada para publicación
Publication Date:2021
Country:España
Institution:Universitat Pompeu Fabra
Repository:Repositorio Digital de la UPF
OAI Identifier:oai:repositori.upf.edu:10230/48735
Online Access:http://hdl.handle.net/10230/48735
http://dx.doi.org/10.1093/restud/rdab055
Access Level:Open access
Keyword:Sovereign debt
Fiscal multiplier
Foreign holdings of public debt
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spelling Fiscal multipliers and foreign holdings of public debtBroner, FernandoClancy, DaraghErce, AitorMartin, Alberto, 1974-Sovereign debtFiscal multiplierForeign holdings of public debtThis paper explores a natural connection between fiscal multipliers and foreign holdings of public debt. Although fiscal expansions can raise domestic economic activity through various channels, they can also have crowding-out effects if the resources used to acquire public debt reduce domestic consumption and investment. These crowding-out effects are likely to be weaker when governments have access to foreign savings when selling their debt. We test this hypothesis for the US in the post-war period and for a panel of 17 advanced economies from the 1980s to the present. To do so, we assemble a novel database of public debt holdings by domestic and foreign creditors for these countries. We combine this data with standard measures of fiscal policy shocks and show that, indeed, the size of fiscal multipliers is increasing in the share of public debt held by foreigners. In particular, the fiscal multiplier is smaller than one when the foreign share is low, such as in the U.S. in the 1950s and 1960s and Japan today, and larger than one when the foreign share is high, such as in the U.S. and Ireland today.Broner and Martin acknowledge financial support from the Spanish Ministry of Economy, Industry and Competitiveness through the I+D Excelencia grant (ECO2016-79823-P), the Spanish Ministry of Science and Innovation through the Severo Ochoa Programme for Centres of Excellence in R&D grant (CEX2019-000915-S), and the Generalitat de Catalunya through the AGAUR grant (2017-SGR-1393) and the CERCA Programme. Martin also acknowledges financial support from the European Research Council under the EU Seventh Framework Programme (FP7/2007-2013) Consolidator Grant (615651-MacroColl).Oxford University Press20212022info:eu-repo/semantics/articleinfo:eu-repo/semantics/acceptedVersionapplication/pdfapplication/pdfhttp://hdl.handle.net/10230/48735http://dx.doi.org/10.1093/restud/rdab055reponame:Repositorio Digital de la UPFinstname:Universitat Pompeu FabraInglésReview of Economic Studies. 2022 May;89(3):1155-204info:eu-repo/grantAgreement/EC/FP7/615651info:eu-repo/grantAgreement/ES/1PE/ECO2016-79823-Pinfo:eu-repo/grantAgreement/ES/2PE/CEX2019-000915-S© Oxford University Press. This is a pre-copyedited, author-produced version of an article accepted for publication in The Review of economic studies following peer review. The version of record Broner F, Clancy D, Erce A, Martin A. Fiscal multipliers and foreign holdings of public debt. Rev Econ Stud. 2022 May;89(3):1155-204. DOI: 10.1093/restud/rdab055 is available online at: http://doi.org/10.1093/restud/rdab055info:eu-repo/semantics/openAccessoai:repositori.upf.edu:10230/487352026-06-12T07:21:37Z
dc.title.none.fl_str_mv Fiscal multipliers and foreign holdings of public debt
title Fiscal multipliers and foreign holdings of public debt
spellingShingle Fiscal multipliers and foreign holdings of public debt
Broner, Fernando
Sovereign debt
Fiscal multiplier
Foreign holdings of public debt
title_short Fiscal multipliers and foreign holdings of public debt
title_full Fiscal multipliers and foreign holdings of public debt
title_fullStr Fiscal multipliers and foreign holdings of public debt
title_full_unstemmed Fiscal multipliers and foreign holdings of public debt
title_sort Fiscal multipliers and foreign holdings of public debt
dc.creator.none.fl_str_mv Broner, Fernando
Clancy, Daragh
Erce, Aitor
Martin, Alberto, 1974-
author Broner, Fernando
author_facet Broner, Fernando
Clancy, Daragh
Erce, Aitor
Martin, Alberto, 1974-
author_role author
author2 Clancy, Daragh
Erce, Aitor
Martin, Alberto, 1974-
author2_role author
author
author
dc.subject.none.fl_str_mv Sovereign debt
Fiscal multiplier
Foreign holdings of public debt
topic Sovereign debt
Fiscal multiplier
Foreign holdings of public debt
description This paper explores a natural connection between fiscal multipliers and foreign holdings of public debt. Although fiscal expansions can raise domestic economic activity through various channels, they can also have crowding-out effects if the resources used to acquire public debt reduce domestic consumption and investment. These crowding-out effects are likely to be weaker when governments have access to foreign savings when selling their debt. We test this hypothesis for the US in the post-war period and for a panel of 17 advanced economies from the 1980s to the present. To do so, we assemble a novel database of public debt holdings by domestic and foreign creditors for these countries. We combine this data with standard measures of fiscal policy shocks and show that, indeed, the size of fiscal multipliers is increasing in the share of public debt held by foreigners. In particular, the fiscal multiplier is smaller than one when the foreign share is low, such as in the U.S. in the 1950s and 1960s and Japan today, and larger than one when the foreign share is high, such as in the U.S. and Ireland today.
publishDate 2021
dc.date.none.fl_str_mv 2021
2022
dc.type.none.fl_str_mv info:eu-repo/semantics/article
info:eu-repo/semantics/acceptedVersion
format article
status_str acceptedVersion
dc.identifier.none.fl_str_mv http://hdl.handle.net/10230/48735
http://dx.doi.org/10.1093/restud/rdab055
url http://hdl.handle.net/10230/48735
http://dx.doi.org/10.1093/restud/rdab055
dc.language.none.fl_str_mv Inglés
language_invalid_str_mv Inglés
dc.relation.none.fl_str_mv Review of Economic Studies. 2022 May;89(3):1155-204
info:eu-repo/grantAgreement/EC/FP7/615651
info:eu-repo/grantAgreement/ES/1PE/ECO2016-79823-P
info:eu-repo/grantAgreement/ES/2PE/CEX2019-000915-S
dc.rights.none.fl_str_mv info:eu-repo/semantics/openAccess
eu_rights_str_mv openAccess
dc.format.none.fl_str_mv application/pdf
application/pdf
dc.publisher.none.fl_str_mv Oxford University Press
publisher.none.fl_str_mv Oxford University Press
dc.source.none.fl_str_mv reponame:Repositorio Digital de la UPF
instname:Universitat Pompeu Fabra
instname_str Universitat Pompeu Fabra
reponame_str Repositorio Digital de la UPF
collection Repositorio Digital de la UPF
repository.name.fl_str_mv
repository.mail.fl_str_mv
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score 15.812429

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