Public Debt Targeting An Application to the Caribbean
AbstractThis paper proposes a fiscal policy framework we call Public Debt Targeting. The framework seeks to smooth primary spending over the business cycle while remaining consistent with public debt sustainability. Under the proposed framework, a government announces a commitment to a public debt band trajectory over the medium term, while sequentially announcing primary expenditures for the next budget cycle, which are determined recursively based on the history of shocks. Public debt targeting differs from a structural balance rule in that it internalizes the effect of the deterioration in creditworthiness from fiscal deficits and public debt accumulation, which tend to affect sovereign spreads, interest rates, exchange rates, and economic activity. The proposed framework is applied to Caribbean economies, which in general show high levels of public debt and procyclical primary expenditure.
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Bibliographic InfoPaper provided by International Monetary Fund in its series IMF Working Papers with number 11/203.
Date of creation: 01 Aug 2011
Date of revision:
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This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-09-22 (All new papers)
- NEP-CBA-2011-09-22 (Central Banking)
- NEP-MAC-2011-09-22 (Macroeconomics)
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