diff --git a/CHANGELOG.md b/CHANGELOG.md
index 3e7eb0a39..d99c901e0 100644
--- a/CHANGELOG.md
+++ b/CHANGELOG.md
@@ -5,6 +5,16 @@ All notable changes to this project will be documented in this file.
 The format is based on [Keep a Changelog](https://keepachangelog.com/en/1.0.0/),
 and this project adheres to [Semantic Versioning](https://semver.org/spec/v2.0.0.html).
 
+## [Unreleased]
+
+### Added
+
+- Fixes Issue [#1202](https://github.com/PSLmodels/OG-Core/issues/1202):
+  `get_r_gov` clipped the interest rate on government debt at zero, so a
+  sovereign that genuinely pays a negative real rate could not be modelled.
+  The bound is now a parameter, `r_gov_floor`, with a default of 0.0 that
+  reproduces the previous behaviour exactly.
+
 ## [0.19.1] - 2026-08-10 12:00:00
 
 ### Added
diff --git a/ogcore/default_parameters.json b/ogcore/default_parameters.json
index 5ab5a94ca..fd61fa86c 100644
--- a/ogcore/default_parameters.json
+++ b/ogcore/default_parameters.json
@@ -1145,6 +1145,27 @@
             }
         }
     },
+    "r_gov_floor": {
+        "title": "Floor on the interest rate on government debt",
+        "section_1": "Fiscal Policy Parameters",
+        "description": "Lower bound applied to the interest rate on government debt after the wedge is computed. The default of 0.0 reproduces the long-standing behavior. Lower it for a sovereign that pays a negative real rate on its debt.",
+        "short_description": "Floor on the government interest rate",
+        "param_notation": "$\\underline{r}_{gov}$",
+        "notes": "",
+        "type": "float",
+        "number_dims": 0,
+        "value": [
+            {
+                "value": 0.0
+            }
+        ],
+        "validators": {
+            "range": {
+                "min": -0.3,
+                "max": 0.3
+            }
+        }
+    },
     "r_gov_DY": {
         "title": "Linear effect of debt to GDP ratio on government interest rate",
         "section_1": "Fiscal Policy Parameters",
diff --git a/ogcore/fiscal.py b/ogcore/fiscal.py
index 675a89961..6a3f0087a 100644
--- a/ogcore/fiscal.py
+++ b/ogcore/fiscal.py
@@ -394,7 +394,7 @@ def get_r_gov(r, DY_ratio, p, method, t=0):
     .. math::
         r_{gov,t} = \max\{(1-\tau_{d,t}r_{t} - \mu_d
         + \beta_1 \frac{D_t}{Y_t}
-        + \beta_2 \left(\frac{D_t}{Y_t}\right)^2, 0.0\}
+        + \beta_2 \left(\frac{D_t}{Y_t}\right)^2, \underline{r}_{gov}\}
 
     Args:
         r (array_like): interest rate on private capital debt over the
@@ -416,7 +416,7 @@ def get_r_gov(r, DY_ratio, p, method, t=0):
             - p.r_gov_shift[t]
             + p.r_gov_DY * DY_ratio
             + p.r_gov_DY2 * DY_ratio**2,
-            0.00,
+            p.r_gov_floor,
         )
     else:
         r_gov = np.maximum(
@@ -424,7 +424,7 @@ def get_r_gov(r, DY_ratio, p, method, t=0):
             - p.r_gov_shift[: p.T]
             + p.r_gov_DY * DY_ratio[: p.T]
             + p.r_gov_DY2 * DY_ratio[: p.T] ** 2,
-            0.00,
+            p.r_gov_floor,
         )
 
     return r_gov
diff --git a/tests/test_fiscal.py b/tests/test_fiscal.py
index 7d0175663..79d030088 100644
--- a/tests/test_fiscal.py
+++ b/tests/test_fiscal.py
@@ -292,6 +292,19 @@ def test_get_TR(
 r_gov1 = 0.02
 r_gov2 = 0.01
 r_gov3 = 0.0
+# p5/p6: the wedge of p3 (which the default floor clips to zero), with the
+# floor lowered so the negative rate comes through, and with the floor set
+# above the wedge so it still binds.
+p5 = Specifications()
+p5.update_specifications(
+    {"r_gov_scale": [0.5], "r_gov_shift": [0.03], "r_gov_floor": -0.05}
+)
+r_gov5 = 0.5 * 0.04 - 0.03  # -0.01, no longer clipped
+p6 = Specifications()
+p6.update_specifications(
+    {"r_gov_scale": [0.5], "r_gov_shift": [0.03], "r_gov_floor": -0.005}
+)
+r_gov6 = -0.005  # floor binds
 p_tpi = Specifications()
 p_tpi.update_specifications(
     {
@@ -323,6 +336,13 @@ def test_get_TR(
 )
 
 
+p_tpi_floor = Specifications()
+p_tpi_floor.update_specifications(
+    {"r_gov_scale": [1.5], "r_gov_shift": [0.09], "r_gov_floor": -0.05}
+)
+r_gov_tpi_floor = 1.5 * r_tpi[: p_tpi_floor.T] - 0.09
+
+
 @pytest.mark.parametrize(
     "r,p,DY_ratio,method,t,r_gov_expected",
     [
@@ -332,6 +352,9 @@ def test_get_TR(
         (r_tpi, p_tpi, DY_tpi, "TPI", None, r_gov_tpi),
         (r, p3, 0, "scalar", 0, r_gov3),
         (r, p4, 0.5, "scalar", 0, r_gov4),
+        (r, p5, 0, "scalar", -1, r_gov5),
+        (r, p6, 0, "scalar", -1, r_gov6),
+        (r_tpi, p_tpi_floor, DY_tpi, "TPI", None, r_gov_tpi_floor),
     ],
     ids=[
         "Scale only",
@@ -340,6 +363,9 @@ def test_get_TR(
         "TPI",
         "scalar",
         "DY params",
+        "negative floor lets r_gov < 0",
+        "floor still binds",
+        "negative floor, TPI",
     ],
 )
 def test_get_r_gov(r, p, DY_ratio, method, t, r_gov_expected):