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Debt and Maturity without Commitment

Author

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  • Dirk Niepelt

    () (Study Center Gerzensee and)

Abstract

I analyze how lack of commitment affects the maturity structure of sovereign debt. Ex post, the government trades off the gains from default induced redistribution against the cost of defaulting. Ex ante, the government issues debt of various maturities to raise an exogenous revenue requirement. The ex-post incentive compatibility constraints introduce a role for gross financial positions, rendering financial structure non-neutral although markets are complete and taxes non-distorting. The optimal maturity structure minimizes the expected costs due to opportunistic behavior ex post. It matches the maturity of government assets (tax collections) and liabilities (debt redemption) and avoids dilution as well as debt rollovers

Suggested Citation

  • Dirk Niepelt, 2006. "Debt and Maturity without Commitment," 2006 Meeting Papers 567, Society for Economic Dynamics.
  • Handle: RePEc:red:sed006:567
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    More about this item

    Keywords

    Debt; maturity structure; no commitment; default;

    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
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt

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