Sustainable Fiscal Policy with Rising Public Debt-To-Gdp Ratios
AbstractIn financial and economic policy circles concerned with public debt in developing countries, a rising debt-GDP ratio is interpreted as a signal of overborrowing, warning of debt defaults if strong fiscal corrections are not adopted in time. This paper shows why this interpretation is incorrect by building a simple model of fiscal policy in which upward-sloping debt paths are observed even though the probability of default is ``almost surely" equal to zero.
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Bibliographic InfoPaper provided by Iowa State University, Department of Economics in its series Staff General Research Papers with number 12701.
Date of creation: 27 Nov 2006
Date of revision:
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Postal: Iowa State University, Dept. of Economics, 260 Heady Hall, Ames, IA 50011-1070
Phone: +1 515.294.6741
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Web page: http://www.econ.iastate.edu
More information through EDIRC
public debt; fiscal policy; debt sustainability; debt limits;
Find related papers by JEL classification:
- E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
- F34 - International Economics - - International Finance - - - International Lending and Debt Problems
- F37 - International Economics - - International Finance - - - International Finance Forecasting and Simulation: Models and Applications
- H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-12-01 (All new papers)
- NEP-MAC-2006-12-01 (Macroeconomics)
- NEP-PBE-2006-12-01 (Public Economics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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"Uninsured idiosyncratic risk and aggregate saving,"
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- Oya Celasun & Xavier Debrun & Jonathan David Ostry, 2006. "Primary Surplus Behavior and Risks to Fiscal Sustainability in Emerging Market Countries," IMF Working Papers 06/67, International Monetary Fund.
- Enrique G. Mendoza & P. Marcelo Oviedo, 2006. "Fiscal Policy and Macroeconomic Uncertainty in Developing Countries: The Tale of the Tormented Insurer," NBER Working Papers 12586, National Bureau of Economic Research, Inc.
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