When Should Public Debt Be Reduced? /

What considerations should guide public debt policy going forward? Should debt be reduced to achieve normative anchors (such as 60 percent of GDP), should it be increased further to finance a big public investment push, or should the existing debt be serviced forever? We argue that, for countries wi...

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Autor principal: Ostry, Jonathan
Altres autors: Espinoza, Raphael, Ghosh, Atish
Format: Revista
Idioma:English
Publicat: Washington, D.C. : International Monetary Fund, 2015.
Col·lecció:Staff Discussion Notes; Staff Discussion Notes ; No. 2015/010
Accés en línia:Full text available on IMF
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Sumari:What considerations should guide public debt policy going forward? Should debt be reduced to achieve normative anchors (such as 60 percent of GDP), should it be increased further to finance a big public investment push, or should the existing debt be serviced forever? We argue that, for countries with ample fiscal space (little risk of encountering a fiscal crisis), raising distortive taxes merely to bring the debt down is a treatment cure that is worse than the disease. High public debt of course is costly, but it is a sunk cost only made worse by efforts to pay down the debt through distortionary taxation. Living with the debt is the welfare-maximizing policy. In decisions vis-a-vis the big push for public investment, golden-rule considerations remain salient, with due account taken of the additional servicing costs (and associated distortive taxation) from the resulting buildup of public debt.
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Descripció física:1 online resource (26 pages)
Format:Mode of access: Internet
ISSN:2617-6750
Accés:Electronic access restricted to authorized BRAC University faculty, staff and students