DE ECONOMIST 138, NR. 1, 1990 DETERMINANTS OF PUBLIC DEBT MATURITIES BY K.P. GOUDSWAARD* l INTRODUCTION In most industrialized countries budget deficits, and thus public debt, have increased rapidly since the mid-seventies (Chouraqui et al., 1986), As a conse- quence, there is a widespread concern about the economic impact of public debt. However, not only the size but also the financing method and the resulting composition of the debt can have sizeable economic effects. Debt financing strategies can influence for example the liquidity structure of the economy, capital market stability, the interest burden of the public debt and the size and frequency of redemption payments. In The Netherlands, for example, the rapid shortening of debt maturities in the early eighties has contributed substantially to a sharp increase in yearly redemption payments. Most empirical studies on domestic debt management are concentrated on the choice between deficit financing by money creation or by (funded) debt creation (see Vuchelen, 1984 and Kremers, 1987). This paper deals with the choice of funded debt maturities. It is an effort to determine the financing strategies which underlie the evolution of public debt maturities in The Netherlands. This evolution is described in Section 2. Section 3 discusses the major general objectives which have been put forward for debt management. These objectives can be associated with several possible financing strategies, which are incorporated in a simple model in Section 4. The model is tested empirically on data for The Netherlands. Section 5 presents the estimation results. Some concluding remarks are made in Section 6. 2 THE EVOLUTION OF PUBLIC DEBT MATURITIES The evolution of the maturity structure of the debt is determined by three factors (cf. Vuchelen, 1984). Firstly, the average maturity in years of a given * Department of Economics, Leiden University. I would like to thank Jakob de Haan, Victor Halberstadt, Robert Haveman, Jeroen Kremers, Gusta Renes, Ben van Velthoven and two referees for valuable comments. Research assistance by Marlies Pel is gratefully acknowledged.