A growing number of large OECD countries are using the fall in public debt interest payments to conduct a more expansionary fiscal policy

The fall in interest rates has significantly reduced large OECD countries’ interest payments on their public debt. We examine to what end these countries have used the fall in their debt interest payments: To reduce the total fiscal deficit; Or to increase the primary fiscal deficit (reduce the primary fiscal surplus), which excludes debt interest payments. We find that the countries that have used the fall in public debt interest payments to worsen their primary fiscal balance are: Until 2018, only the United States and Italy; Since 2019, also Germany and France. The temptation to use the fall in interest payments on the public debt to increase public spending or to reduce taxes is strong.