This paper studies the optimal management of the maturity of government debt in an economy without commitment. We consider a reputation where any deviation triggers reversion to the worst sustainable equilibrium. We obtain two results. First, contrary to earlier literature, we show that a very rich debt structure is not a necessary condition to solve the time-inconsistency problem. Second, we learn how to allocate the outstanding debt into short and long-term bonds to enhance the credibility of the government policy. (Copyright: Elsevier)
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Article provided by Elsevier for the Society for Economic Dynamics in its journal Review of Economic Dynamics.
Find related papers by JEL classification: E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management
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