Public Confidence and Debt Management: a Model and a Case Study of Italy

45 Pages Posted: 14 Dec 2002 Last revised: 28 Jul 2022

See all articles by Alberto F. Alesina

Alberto F. Alesina

Harvard University - Department of Economics; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Alessandro Prati

International Monetary Fund (IMF) - Research Department, Deceased

Guido Tabellini

Bocconi University - Department of Economics; Bocconi University - IGIER - Innocenzo Gasparini Institute for Economic Research; Center for Economic Studies and Ifo Institute for Economic Research (CESifo)

Date Written: October 1989

Abstract

High debt countries may face the risk of self-fulfilling debt crises. If the public expects that in the future the government will be unable to roll over the maturing debt, they may refuse to buy debt today and choose to hold foreign assets. This lack of confidence may then be self-fulfilling. This paper argues that under certain conditions, the occurrence of a confidence crisis is more likely if the average maturity of the debt is short. In the contrary, a long and evenly distributed maturity structure may reduce such a risk. We consider the recent Italian experience from this perspective. In particular we ask whether recent developments in the market for government debt showy signs of unstable public confidence, and of a risk premium.

Suggested Citation

Alesina, Alberto F. and Prati, Alessandro and Tabellini, Guido, Public Confidence and Debt Management: a Model and a Case Study of Italy (October 1989). NBER Working Paper No. w3135, Available at SSRN: https://ssrn.com/abstract=362062

Alberto F. Alesina (Contact Author)

Harvard University - Department of Economics ( email )

Littauer Center
Cambridge, MA 02138
United States
617-495-8388 (Phone)
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Centre for Economic Policy Research (CEPR)

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United Kingdom

National Bureau of Economic Research (NBER)

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United States

Alessandro Prati

International Monetary Fund (IMF) - Research Department, Deceased ( email )

Guido Tabellini

Bocconi University - Department of Economics ( email )

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Milan, 20136
Italy

Bocconi University - IGIER - Innocenzo Gasparini Institute for Economic Research ( email )

Via Roentgen 1
Milan, 20136
Italy

Center for Economic Studies and Ifo Institute for Economic Research (CESifo)

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Munich, DE-81679
Germany

HOME PAGE: http://www.CESifo.de

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