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We use close parliamentary elections as natural experiments to estimate the debt sensitivity of
interest rates. Relative to an election in which one party barely secures a majority, an election
in which no party achieves a majority causes the debt-to-GDP ratio to increase by 17 percentage
points, while real interest rates rise by 99 basis points. If elections only impact real rates via
debt, our results imply that a one percentage point increase in the debt-to-GDP ratio causes a
5.8 basis point increase in real rates, larger than most previous estimates.
