Debt revenue and the sustainability of public debt

Reis, Ricardo ORCID: 0000-0003-4844-9483 (2022) Debt revenue and the sustainability of public debt. Journal of Economic Perspectives, 36 (4). pp. 103-124. ISSN 0895-3309

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Abstract

While public debt has risen in the last two decades, the return that it offers to investors has fallen, especially relative to the return on private investment. This creates a revenue for the government as the supplier of the special services offered by public bonds, which include storage of value, safety, liquidity, and reprieve from repression. The present value of this debt revenue is large relative to the stock of public debt, keeping it sustainable even as the present value of primary balances is zero or negative. It gives rise to different policy tradeoffs than the conventional analysis of primary balances and makes different recommendation on the effects of austerity, the optimal amount of debt, or the spillovers between monetary and fiscal policy.

Item Type:	Article
Additional Information:	© 2023 American Economic Association.
Divisions:	Economics
Subjects:	H Social Sciences > HB Economic Theory
JEL classification:	E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Employment, and Investment > E23 - Production E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E52 - Monetary Policy (Targets, Instruments, and Effects) E - Macroeconomics and Monetary Economics > E6 - Macroeconomic Policy Formation, Macroeconomic Aspects of Public Finance, Macroeconomic Policy, and General Outlook > E62 - Fiscal Policy; Public Expenditures, Investment, and Finance; Taxation H - Public Economics > H6 - National Budget, Deficit, and Debt > H61 - Budget; Budget Systems H - Public Economics > H6 - National Budget, Deficit, and Debt > H62 - Deficit; Surplus H - Public Economics > H6 - National Budget, Deficit, and Debt > H63 - Debt; Debt Management
Date Deposited:	07 Feb 2023 13:03
Last Modified:	12 Dec 2024 03:34
URI:	http://eprints.lse.ac.uk/id/eprint/118125

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