Princeton University Library Catalog

Optimal Debt Policy Under Asymmetric Risk [electronic resource] / Julio Escolano.

Escolano, Julio [Browse]
Washington, D.C. : International Monetary Fund, 2016.
1 online resource (21 p.)
IMF Working Papers [More in this series]
Summary note:
In the paper we show that, most of the time, smooth reduction in the debt ratio is optimal for tax-smoothing purposes when fiscal risks are asymmetric, with large debt-augmenting shocks more likely than commensurate debt reducing shocks. Asymmetric risks are a feature of 200 years of data for the U.S. and the U.K.: rare but recurrent large surges of the debt-to-GDP ratio, followed by very gradual but persistent declines over long periods. More informal evidence from many other countries suggests that asymmetry is a general feature of fiscal shocks. The gradual smooth reduction in the public debt to GDP ratio is not a response to past developments. Instead it is optimal given recurrent fiscal risks and the empirical characteristics of fiscal shocks. The behavior of the debt-to-GDP ratio in the U.K. and the U.S. seems roughly compatible with the prescriptions of the tax-smoothing model.
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Description based on print version record.
  • 1475529848 :
  • 10.5089/9781475529845.001
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