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<p>Financial repression can be used to avoid a government default when fiscal policy is constrained. We present a model showing that optimal financial repression progresses through successive stages with increasing levels of distortion. In the early stage, banks purchase government debt; in the later stage, the government extracts quasi-fiscal revenue from the banking sector. Data from advanced economies suggest that the initial stage of financial repression begins when government debt exceeds 100–120% of GDP.</p>

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From Fiscal Deadlock to Financial Repression: Anatomy of a Fall

  • 期刊论文

  • 发表日期：

    2026年2月13日

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  • Olivier Jeanne

摘要

Financial repression can be used to avoid a government default when fiscal policy is constrained. We present a model showing that optimal financial repression progresses through successive stages with increasing levels of distortion. In the early stage, banks purchase government debt; in the later stage, the government extracts quasi-fiscal revenue from the banking sector. Data from advanced economies suggest that the initial stage of financial repression begins when government debt exceeds 100–120% of GDP.