Governments in emerging markets often behave like a “tormented insurer,” who would like to smooth government outlays given the randomness of public revenues in an imperfect world where the only public debt instrument is a non-state-contingent bond denominated in units of tradable goods. How can a fiscal authority tell if the stock of public debt is consistent with fiscal solvency in this enviro...

A tax-smoothing objective is used to assess the optimal composition of public debt with respect to maturity and contingencies. This objective motivates the government to make its debt payouts contingent on the levels of public outlay and the tax base. If these contingencies are present, but asset prices of non-contingent indexed debt are stochastic, then full tax smoothing dictates an optimal m...

Public debt management, in the sense of manipulation of a given stock, has been a policy problem at least since World War II. During this time, dissatisfaction with the handling of the debt has surfaced sporadically. A feeling that the average maturity of the debt should be longer than it was has been pervasive. But no generally accepted philosophy of the public debt management has emerged. Var...

Despite the large size of the Brazilian debt market, as well the large diversity of its bonds, the picture that emerges is of a market that has not yet completed its transition from the role it performed during the megainflation years, namely that of providing a liquid asset that provided positive real returns. This unfinished transition is currently placing the market under severe stress, as f...

This paper explains why public domestic debt composition in emerging economies can be risky, namely in foreign currency, with a short maturity or indexed. It analyses empirically the determinants of these risk sources separately, developing a new large dataset compiled from national sources for 33 emerging economies over 1994-2006. The paper finds that economic size, the breadth of the domestic...

The fiscal theory of the price level asserts that the price level is determined by the ratio of outstanding public nominal debt into the present value of real primary budget surpluses of the government. We here argue that price determinacy, in general, fails when at least part of the public debt takes the form of securities of infinite maturity. Indeed, price determinacy requires non-Ricardian ...

Systemic financial crises involve debt (leverage). We provide a theory of the optimality of debt, which nevertheless can lead to a crisis. Trade is best implemented by debt because it provides the smallest incentive for private information production, which creates trade-reducing adverse selection. Debt preserves symmetric ignorance between counterparties. Debt is least information-sensitive: t...

We study the effect of public debt on economic growth for annual and 5-year average growth rates, as well as the existence of non-linearity effects of debt on growth for 14 European countries from 1970 until 2012. We also consider debt-to-GDP ratio interactions with various subsets of monetary, public finance, institutional and macroeconomic variables. Our results show a maximum negative impact...

The tendency of countries to accumulate public debt has been rationalized in models of political disagreement and lack of commitment. We analyze in a benchmark model how the evolution of public debt is affected by lack of commitment per se. While commitment introduces indeterminacy in the level of debt, lack of commitment creates incentives for debt to converge to specific levels. One of the le...

We thank Greg Udell, Patricia Wilson, and participants at the 1995 FMA meetings for helpful comments and discussions. We are responsible for any mistakes that remain. The views in this paper are not necessarily those of the Federal Reserve Bank of Philadelphia or the Federal Reserve System. Abstract We examine a firm's choice between public and private debt in a model where the firm's financing...