Government debt instruments (e.g., money and government bonds) serve many functions in the private sector. They can be stores of value, vehicles for the payment of taxes, media for transactions, and so forth. Their roles vary from economy to economy depending upon institutions and conventions. One of the roles, however, is basic to all others: if a government debt instrument does not serve as a...

Why do some developing country governments accumulate large foreign debts while others do not? I hypothesize that variation in foreign borrowing is a function of variation in the breadth of public participation in the political process. Specifically, governments borrow less when political institutions enable broad public participation in the political process and encourage the revelation of inf...

We consider a model in which a benevolent government has to choose optimally distortionary taxes on labor income and uncontingent debt, in order to finance an exogenous stream of public expenditure. We compare the optimal fiscal plan in two frameworks. In the first one households are fully confident about government solvency. In the second, households believe that there is a positive default pr...

This paper uses yearly panel data on OECD countries to analyze the relationship between growth and the cyclicality of government debt. We develop new time-varying estimates of the cyclicality of public debt. Our main findings can be summarized as follows: (i) less procyclical public debt growth can have significantly positive effects on productivity growth, in particular when financial developm...

Debt management policy for governments of developing countries must balance conflicting objectives. The structure of explicit and implicit government debt influences the amount of lending private creditors are willing to extend, contractual debt service costs, the probability of default and the costs of default. Because default is not relevant for governments of industrial countries, their debt...

We show how to decentralize constrained efficient allocations that arise from enforcement constraints between sovereign nations. In a pure exchange economy, these allocations can be decentralized with private agents acting competitively and taking as given government default decisions on foreign debt. In an economy with capital, these allocations can be decentralized if the government can tax c...

We propose a restructuring of U. S. Federal debt. All debt should be perpetual, paying coupons forever with no principal. The debt should be composed of the following: 1) Fixedvalue, floating-rate, electronically transferable debt. Such debt looks like a money-market fund, or reserves at the Fed, to an investor. 2) Nominal perpetuities. This debt pays a coupon of $1 per bond, forever. 3) Indexe...

Assuming a no arbitrage environment, this article analyses the role of the government in the context of company valuation when …rms follow di¤erent …nancial policies. For the two analyzed …nancial policies, the tax authority’s required returns and the value of tax payments are derived. Based on these results, we study the risk sharing e¤ects between equity owners and the government. It is shown...

We explore the role of inflation credibility in self-fulfilling debt crises. In particular, we propose a continuous time model of nominal debt with the potential for selffulfilling debt crises as in Calvo (1988) and Cole and Kehoe (2000). We characterize crisis equilibria conditional on the level of commitment to low inflation. With strong commitment, which can be interpreted as joining a monet...

n 1998, the federal government of the United States reached a budget surplus for the first time in 30 years. Even though many commentators have described this event as a rare and major success, what is remarkable is not that the U.S. government has reached a surplus, but that this result is perceived as so "exceptional." In fact, given the strong expansion of the U.S. economy in the last eight ...