Public Debt Management and Bailouts

July 1, 1999

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Torbjorn I. Becker Public Debt Management and Bailouts, (USA: International Monetary Fund, 1999) accessed November 12, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

This paper addresses how public debt should be managed to reduce the cost of private sector bailouts. It uses a tax smoothing model to show that bailouts affect the timing of government deficits and surpluses as well as the composition of public debt. In general, public debt managers will have to monitor the private sector’s leverage and portfolio composition in order to design the tax smoothing policy. This contrasts with Ricardian models where households monitor the government’s debt. The moral hazard aspect of defaults is also shown to be important in determining an optimal government debt strategy.

Subject: Bonds, Budget planning and preparation, Financial institutions, Financial sector policy and analysis, Government debt management, Moral hazard, Public debt, Public financial management (PFM)

Keywords: Bailouts, Bonds, Budget constraint, Budget planning and preparation, Firms behavior, Firms' position, Firms use, Government debt management, Moral hazard, Optimal portfolio, Portfolio choice, Portfolio share, Public debt management, Representative company, Tax smoothing, WP

Publication Details

Pages:

23
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 1999/103
Stock No:

WPIEA1031999
ISBN:

9781451852677
ISSN:

1018-5941

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