Sean Kenny: Department of Economic History, Lund University, Postal: Department of Economic History, Lund University, Box 7083, S-220 07 Lund, Sweden
Abstract: In this paper I study the public debt dynamics of three episodes (the crises of the 1950s, the 1980s and 2010-15) in Ireland’s modern economic history. By using traditional debt dynamic decomposition formulae, I measure the components which contributed most to public debt ratio reduction following previous high debt episodes. I also employ the case of Sweden for comparative purposes, in how it emerged from the increase in public debt in the aftermath of its banking crisis 1991-1993. The key findings which emerge are 1) the reduction of the public ratio following the 1980s episode was predominantly driven by cumulative primary surpluses, though a favourable growth and interest rate differential emerged as the key determinant in the late 1990s. Additionally, public debt in the 1980s was considerably more difficult to service in terms of tax revenues and maturity structures than the current event. 2) Public debt continued to increase following the crisis of the 1950s due to higher interest rates and lower inflation, despite a recovery in growth and fiscal contraction. 3) In line with other research isolating the uniqueness of open economy debt reductions, I find that though Sweden (like Ireland) reduced public debt in an environment of strong international growth, it did so in a macroeconomic environment of higher interest rates and falling inflation, entirely through budget surplus accumulation.
43 pages, May 23, 2016
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