What effect does a fall in long-term interest rates relative to the growth rate have on the public debt?

Ceteris paribus , a fall in the long-term interest rate relative to the growth rate reduces the public debt ratio. But a lower long-term interest rate may also lead the government to run a higher primary fiscal deficit. This is especially the case if the long-term interest rate becomes lower than the growth rate, as a fiscal surplus is then no longer needed to ensure debt sustainability. If the primary fiscal deficit increases sharply, a fall in the long-term interest rate below the growth rate may instead lead to a rise in the public debt ratio. We look empirically at how the public debt ratio has reacted to a fall in long-term interest rates relative to the growth rate in the seven largest OECD countries. We find: Four countries where the fall in interest rates has led to more expansionary fiscal policies: United States, United Kingdom, Japan, France; Three countries where this is not the case: Germany, Spain, Italy.