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The Sustainability and Optimality of Government Debt

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  • Howell H. Zee

    (International Monetary Fund)

Abstract

The sustainability and optimality rules for government debt are derived within an intertemporal optimizing framework in which both capital and government debt are endogenous, driven by utility and profit-maximizing behavior of private agents and tax and expenditure policies of the government. The rules are expressed purely in terms of familiar economic parameters, and their ready applicability in an operational context is illustrated by instructive numerical examples. A discussion of the relationship between the optimality rule and the "golden rule" of savings in the literature is also provided.

Suggested Citation

  • Howell H. Zee, 1988. "The Sustainability and Optimality of Government Debt," IMF Staff Papers, Palgrave Macmillan, vol. 35(4), pages 658-685, December.
    • Handle: RePEc:pal:imfstp:v:35:y:1988:i:4:p:658-685
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    Citations

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    Cited by:

    1. Arne Heise, 2002. "Optimal Public Debts, Sustainable Deficits, and Budgetary Consolidation," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 29(4), pages 319-337, December.
    2. Nicholas Apergis & Konstantinos Katrakilidis & Nicholas Tabakis, 2000. "Current account deficit sustainability: The case of Greece," Applied Economics Letters, Taylor & Francis Journals, vol. 7(9), pages 599-603.
    3. Thomas J. Finn, 1990. "The Feasibility of the Projected Federal DEBT," Public Finance Review, , vol. 18(3), pages 360-368, July.
    4. Jérôme Creel & Henri Sterdyniak, 1995. "Les déficits publics en Europe," SciencePo Working papers Main hal-03458224, HAL.
    5. repec:hal:spmain:info:hdl:2441/2965 is not listed on IDEAS
    6. Alberto Bagnai, 2004. "Keynesian and neoclassical fiscal susteinability indicators, with applications to EMU member countries," Working Papers in Public Economics 75, University of Rome La Sapienza, Department of Economics and Law.
    7. Jérôme Creel & Henri Sterdyniak, 1995. "Les déficits publics en Europe. Causes, conséquences ou remèdes à la crise ?," Revue Économique, Programme National Persée, vol. 46(3), pages 645-656.
    8. Gábor Kutasi, 2017. "Unsustainable Public Debt in a European Fiscal Union?," Revista Finanzas y Politica Economica, Universidad Católica de Colombia, vol. 9(1), pages 25-39, February.
    9. Kugbee S. James & Insah Baba, 2015. "Fiscal Sustainability in the Ghanaian Economy: A Fiscal Reaction Function Approach," Economy, Asian Online Journal Publishing Group, vol. 2(1), pages 16-20.
    10. repec:spo:wpmain:info:hdl:2441/2965 is not listed on IDEAS
    11. Kurniawan, Rudi, 2012. "Sustainability of Fiscal Policy and Government Revenue-Expenditure Nexus: The Experience of Indonesia," MPRA Paper 65883, University Library of Munich, Germany.

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