How do di¤erent levels of government debt a¤ect the optimal conduct of monetary and …scal policies? And what do these optimal policies imply for the evolution of government debt over time? To provide an answer, this paper studies a standard monetary policy model with nominal rigidities and monopolistic competition and adds to it a …scal authority that issues nominal non-state contingent debt, l...

While raising debt on behalf of the government, public debt managers need to consider several possibly conflicting objectives and have to find an appropriate combination for government debt taking into account the uncertainty with regard to the future state of the economy. In this paper, we explicitly consider the underlying uncertainties with a complex multi-period stochastic programming model...

This article examines the undemocratic process of telecommunications divestment in Jamaica and Trinidad and Tobago. The divestment of the telecommunications sector was largely prompted by each state’s inability to service external debt. Despite espousing the importance of public participation in the ownership of state-owned enterprises being divested, the governments each limited or excluded na...

We study the sustainability of public debt in a closed production economy where a benevolent government chooses fiscal policies, including haircuts on its outstanding debt, in a discretionary manner. Government bonds are held by domestic agents to smooth consumption over time and because they provide collateral and liquidity services. We characterize a recursive equilibrium where public debt am...

The fiscal theory of the price level asserts that the price level is determined by the ratio of outstanding public nominal debt into the present value of real primary budget surpluses of the government. We here argue that price determinacy, in general, fails when at least part of the public debt takes the form of securities of infinite maturity. Indeed, price determinacy requires non-Ricardian ...

From the view of current conditions and developing trends of the debt scale in Chinese local government, the debt crisis will explode in the near future if it cannot be controlled in an effective way. According to the regional distribution in China, except for Beijing, Shanghai, Tianjin, and Hainan, the debt risk is mainly concentrated in the western region. In a further step, it can be seen th...

In models with a representative infinitely lived household, modern versions of tax smoothing imply that the steady-state of government debt should follow a random walk. This is unlikely to be the case in OLG economies, where, the equilibrium interest rate may differ from the policy-maker’s rate of time preference such that it may be optimal to reduce debt today to reduce distortionary taxation ...

Historically, average real returns on U.S. government debt have been far below the rate of economic growth, allowing the U.S. government to roll over its debt at a rather low cost. At the same time, the rate of return on capital has generally been above the growth rate, suggesting that the U.S. economy is dynamically efficient. The paper shows that the welfare implications of budget deficits in...

This paper proposes a theory of government debt which, as opposed to previous theories, delivers an interior steady state that is independent of initial debt. The key elements are nominal public debt and a benevolent government that cannot commit to future policy choices. Governments face a trade-off. On the one hand, they would like to increase the debt and delay taxation, so as to reduce curr...