European Parliament Library

Bailing Out the People? When Private Debt Becomes Public, Samba Mbaye, Marialuz Moreno Badia, Kyungla Chae

Abstract
This paper documents a form of private sector bailout that is much more common (and yet unnoticed) than the typical bank bailout. Building on the newly-created Global Debt Database, we show that excess private debt systematically turns into higher public debt, regardless of whether the credit boom resulted in a crisis or a more orderly deleveraging process. This debt migration operates mainly through growth rather than explicit bailouts: private deleveraging weighs on activity, prompting a countercyclical government response to support economic activity. Ultimately, whether this debt substitution results in a net increase or a net decline of overall indebtedness in the economy depends on the extent of the growth slowdown during the deleveraging spell. These findings suggest that markets and policymakers should move away from looking at private and sovereign debt in silos and pay closer attention to the total stock of debt in the economy, as the line between the two tends to become blurry
Table Of Contents
Cover -- Contents -- I. Introduction -- II. Data And Definitions -- A. Data -- B. Private Deleveraging: Definitions And Statistics -- III. Stylized Facts -- IV. Private Deleveraging In Modern History -- A. Methodology -- B. What Happens Before, During, And After Private Deleveraging? -- V. Tackling Causality -- A. The Ipwra Method -- B. Estimating The Causal Impact Of Private Deleveraging -- VI. Concluding Remarks -- References -- ANNEXES -- 1. Data: Country Coverage -- 2. Private Debt And Leverage Flows -- 3. Deleveraging Episodes By Income Groups -- 4. Additional Figures And Tables -- FIGURES -- 1. Advanced Economies: Gross Debt -- 2. Spain: Gross Debt -- 3. Private Debt in the Global Debt Database -- 4. Number of Deleveraging Episode -- 5. Probability of Deleveraging by Decades -- 6. Incidence of Private Deleveraging, 1950-2016 -- 7. Macroeconomic Dynamics During Private Deleveraging -- 8. Sources of Change in Public Debt During Private Deleveraging in Advanced Countries -- 9. "Growthless" vs "High Growth" Deleveraging -- 10. "Post-GFC" vs. "Pre-GFC" Deleveraging Episodes -- 11. Deleveraging Episodes -- 12. Cumulative Impact of Private Deleveraging on GDP and Public Debt -- TABLES -- 1. Average Features of Private Deleveraging Episodes -- 2. Private Deleveraging Episodes: Crisis vs. Non-crisis -- 3. Average Macro-Economic Conditions during Normal Times -- 4. Determinants of Private Deleveraging -- 5. Impact of Private Deleveraging on Growth and Public Debt (IPWRA)
Language
eng
Literary Form
non fiction
Physical Description
1 online resource (46 pages)
Specific Material Designation
remote
Form Of Item
online
Isbn
9781484363911

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