Public Debt Ratio and its Determinants in France Since 1890 Does Econometrics Supports the Historical Evidence?

44 Pages Posted: 11 Jul 2012

See all articles by Gilles Dufrénot

Gilles Dufrénot

GREQAM and Aix-Marseille School of Economics

Karim Triki

Banque de France

Date Written: July 1, 2012

Abstract

Can the evolution of public debt be predicted from its determinants? While the recovery programs undertaken during the 2008 crisis have led to a big takeoff in public debt ratios, the factors likely to curb its upward spiraling dynamic are subject to considerable uncertainty and fuel debate among economists. Are budgetary consolidations alone sufficient? Is there a need to return to inflationary policies, or is strong economic growth the essential factor to bring about a drop in the public debt ratio? The present paper proposes a long term retrospective study of the French case. A model of advanced indicators for the debt ratio is proposed whose results are interpreted in the light of the historical context. It is shown that from the end of the 19th century to the beginning of the 1950s, growth, inflation and primary balances were factors capable of explaining the alternation between upward and downward phases in the debt ratio. Then, during the three decades of the post-war boom, very high inflation and economic growth masked nascent budgetary imbalances while the so-called 'stop and go' policies were privileged. The 1980s marked a break in the sense that growth and improvement in the primary balances no longer allowed the upward dynamics of the debt ratio to be reversed.

Keywords: public debt, debt ratio, advanced indicators, economic history, forewarning indicator

JEL Classification: H54, C4

Suggested Citation

Dufrénot, Gilles and Triki, Karim, Public Debt Ratio and its Determinants in France Since 1890 Does Econometrics Supports the Historical Evidence? (July 1, 2012). Banque de France Working Paper No. 385, Available at SSRN: https://ssrn.com/abstract=2103515 or http://dx.doi.org/10.2139/ssrn.2103515

Gilles Dufrénot (Contact Author)

GREQAM and Aix-Marseille School of Economics ( email )

Centre de la vieille Charité
2 rue de la Charité
13002 Marseille, 13236
France

Karim Triki

Banque de France ( email )

Paris
France

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