Scandinavian Working Papers in Economics

Working Paper Series,
Research Institute of Industrial Economics

No 1239: Regulation and Government Debt

Niclas Berggren () and Christian Bjørnskov ()
Additional contact information
Niclas Berggren: Research Institute of Industrial Economics (IFN), Postal: Research Institute of Industrial Economics, Box 55665, SE-102 15 Stockholm, Sweden
Christian Bjørnskov: Department of Economics, Aarhus University, Denmark, Postal: and Research Institute of Industrial Economics, Stockholm, Sweden,

Abstract: Government debt is high in most developed countries, and while it may reflect short-term attempts to kick-start the economy in times of crisis through fiscal stimulus, the longer-term consequences risk being detrimental to investment and growth. This makes it important to identify factors that are associated with debt. While previous studies have related government debt to economic and political variables, they have not incorporated the degree to which the economy is regulated. Using regulatory freedom (absence of detailed regulation of labor, business and credit) from the Economic Freedom of the World index, we conduct an empirical analysis covering up to 67 countries in the period 1975–2010. The main finding is that regulatory freedom, especially for credit, affects debt development negatively. The effect is more pronounced when the political system is fractionalized and characterized by strong veto institutions, indicating policy stability and credibility, and when governments have a right-wing ideology.

Keywords: Debt; Economic freedom; Regulation; Markets; Stimulus; Keynesianism

JEL-codes: E02; H63

47 pages, October 10, 2018

Full text files

wp1239.pdf PDF-file Full text

Download statistics

Questions (including download problems) about the papers in this series should be directed to Elisabeth Gustafsson ()
Report other problems with accessing this service to Sune Karlsson ().

This page generated on 2019-04-30 10:51:02.