Of Deficits And Debt Service

The Theory of Optimum Deficits and Debt

This paper deals with some of the issues that arise in connection with the optimal financing of a given program of "exhaustive" public spending on goods and services. The determination of the size and composition of this real spending program is not considered. A more general view would encompass the optimal joint determination of the public sector’s consumption and investment program and its m...

Optimal Debt Service: Straight vs. Convertible Debt

In this paper, we analyze the optimal default strategy of a firm when debt is convertible into equity. For this purpose, we consider a convertible consol bond in a time-independent model in the presence of bankruptcy costs and tax deductability. The optimal default and conversion strategy result from a game between equity and debt holders. We show that an optimal default of convertible debt occ...

The Behavior of U.s. Public Debt and Deficits*

How do governments react to the accumulation of debt? Do they take corrective measures or do let the debt grow? Whereas standard time series test cannot reject a unit root in the U.S. debt-GDP ratio, this paper provides evidence of corrective action: The U.S. primary surplus is an increasing function of the debt-GDP ratio. The debt-GDP ratio displays mean-reversion if one controls for war-time ...

1995 Symposium Proceedings: BUDGET DEFICITS AND DEBT: ISSUES AND OPTIONS

Concern about the harmful effects of chronic deficits and cumulative government debt has been growing both here and abroad. In the United States, policymakers have responded to this concern with a series of budget initiatives, culminating in Congress’ adoption this year of a budget resolution that projects a balanced budget and the President’s proposals for accomplishing the same end. European ...

Debt and Deficits: Some Measurement, Economic and Political Issues