Public debt when rates exceed growth
Public debt, fiscal rules and debt sustainability appear on 215 recent papers in the economics and finance journals, but only 41 of them carry an interest-rate, debt-service or monetary keyword. For a decade, low rates made debt look free. With interest costs now the fastest-growing budget item in several countries, which governments adjust, and how?
What prompted this#
Since October 2025, 215 papers carry a public-debt, debt-sustainability, government-debt, fiscal-sustainability, debt-to-GDP or fiscal-rule keyword (121 in economics journals, 87 in finance): "public debt" on 98, "fiscal rules" on 32, "fiscal sustainability" on 31, "debt sustainability" on 12. Only 41 of them also carry an interest-rate, debt-service, interest-burden or monetary keyword.
Questions#
- As interest costs rise, do governments cut investment, raise taxes, or let deficits widen, and does the response depend on fiscal rules?
- Do bond markets now punish deficits faster, as the UK's 2022 episode suggested, and which countries are most exposed?
- How much do rising rates on domestic debt redistribute from taxpayers to bondholders?
Data that could help#
Government budget data by category, interest payments and debt maturity (IMF, OECD), sovereign yields and the dates of fiscal rule changes.
Next step#
Decompose the change in primary balances across OECD countries since 2022 into spending and revenue responses, and relate them to each country's interest cost increase.