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Public Debt Management and Bailouts

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  • Törbjörn I. Becker
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    Abstract

    This paper addresses how public debt should be managed to reduce the cost of private sector bailouts. It uses a tax smoothing model to show that bailouts affect the timing of government deficits and surpluses as well as the composition of public debt. In general, public debt managers will have to monitor the private sector’s leverage and portfolio composition in order to design the tax smoothing policy. This contrasts with Ricardian models where households monitor the government’s debt. The moral hazard aspect of defaults is also shown to be important in determining an optimal government debt strategy.

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    File URL: http://www.imf.org/external/pubs/cat/longres.aspx?sk=3170
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    Bibliographic Info

    Paper provided by International Monetary Fund in its series IMF Working Papers with number 99/103.

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    Length: 23
    Date of creation: 01 Jul 1999
    Date of revision:
    Handle: RePEc:imf:imfwpa:99/103

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