Third, uncertainty around public debt developments is large and difficult to model. Thus markets can always, for good or bad reasons, question governments' commitment to face their financial obligations. As such, sustainability is a purely forward-looking notion, and assessing it amounts to reading tea leaves. Debrun, Xavier and Ostry, Jonathan D. and Willems, Tim and Wyplosz, Charles, Public Debt Sustainability (September 2019). ScienceDirect ® is a registered trademark of Elsevier B.V. ScienceDirect ® is a registered trademark of Elsevier B.V. Public debt sustainability: An empirical study on OECD countries. For instance, countries relying on financial repression have been able to maintain interest rates consistently below growth rates, allowing them to avoid explosive debt-to-GDP ratios while running primary deficits on a routine basis (e.g. CEPR charges a fee of $8.00 for this paper. For example, the infinite horizon tax gap, or S2 sustainability indicator in European Commission phraseology is defined as: •Literal definition: a sustainable debt is that which can be maintained at a certain rate or level. Knowing whether public debt is sustainable is as critical for economists analysing fiscal policy as for practitioners tasked with charting desirable policy paths. For a panel of 21 OECD heterogeneous countries from 1991 to 2015, we study governments’ reactions to the accumulation of debt and look at whether governments voluntary take corrective measures when the debt-GDP ratio starts rising or they rather let the debt grow. A clear and present danger facing economists and practitioners involved in debt sustainability assessments is to be overwhelmed by the number, fuzziness, and complexity of relevant considerations. International Monetary Fund (IMF) - Research Department, University of Geneva - Graduate Institute of International Studies (HEI); Centre for Economic Policy Research (CEPR). •In macro literature: 1. This column fleshes out three principles guiding the design and implementation of sound debt sustainability frameworks: relevance, simplicity and transparency. First, debt sustainability does not easily translate into operational concepts and indicators. There are many different indicators of fiscal sustainability. Authors’ note: The views in this column are those of the authors and do not necessarily represent the views of the National Bank of Belgium or the IMF, its Executive Board, or IMF management. Public debts are high and rising. Escolano et al. Copyright © 2020 Elsevier B.V. or its licensors or contributors. 2011, Wyplosz 2019). Evidence that a government has historically neglected to behave in a way consistent with stable public debt dynamics – for example, by failing to systematically improve the primary balance in response to rising debt – should raise concerns. Sandleris, G (2016), “The Costs of Sovereign Defaults: Theory and Empirical Evidence,” Economia 16(2): 1-27. As if the lack of concrete meaning (and simple indicators) was not hard enough, debt sustainability assessments face at least three other challenges. Academic economists worry that the “long-term trend in debt accumulation seems inconsistent with [these] theories of optimal government debt policies” (Yared 2019). In the short term, an asymmetric fiscal policy response exploiting the output gap, by part of the political class of the countries considered, seems to emerge: it intervenes with a new deficit and debt when the output gap is positive, but it does not adopt a symmetrical correction when the situation is reversed. Basic stylised facts speak loudly of the challenge: how can we imagine an operational framework suggesting that Japan can sustain debt levels above 200% of GDP without any pressure on sovereign yields, while Ukraine defaulted on a debt stock e… Ostry, J D, A R Ghosh, J I Kim, and M Qureshi (2011), “Fiscal Space”, IMF Staff Position Note N° 10/11. A world without the WTO: what’s at stake?

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