Fiscal Insurance and Debt Management in OECD Economies

43 Pages Posted: 5 Jun 2008

See all articles by Elisa Faraglia

Elisa Faraglia

London Business School

Albert Marcet

Universitat Autònoma de Barcelona - Institut d'Anàlisi Economica CSIC

Andrew Scott

London Business School - Department of Economics; Centre for Economic Policy Research (CEPR)

Abstract

Assuming the role of debt management is to provide hedging against fiscal shocks we consider three questions: i) what indicators can be used to assess the performance of debt management? ii) how well have historical debt management policies performed? and iii) how is that performance affected by variations in debt issuance? We consider these questions using OECD data on the market value of government debt between 1970 and 2000.

Motivated by both the optimal taxation literature and broad considerations of debt stability we propose a range of performance indicators for debt management. We evaluate these using Monte Carlo analysis and find that those based on the relative persistence of debt perform best. Calculating these measures for OECD data provides only limited evidence that debt management has helped insulate policy against unexpected fiscal shocks. We also find that the degree of fiscal insurance achieved is not well connected to cross country variations in debt issuance patterns. Given the limited volatility observed in the yield curve the relatively small dispersion of debt management practices across countries makes little difference to the realised degree of fiscal insurance.

Keywords: Bond Markets, Debt Management, Fiscal Insurance, Fiscal Policy

JEL Classification: E43, E62, H62, H63

Suggested Citation

Faraglia, Elisa and Marcet, Albert and Scott, Andrew, Fiscal Insurance and Debt Management in OECD Economies. CEPR Discussion Paper No. DP6539, Available at SSRN: https://ssrn.com/abstract=1140066

Elisa Faraglia

London Business School ( email )

Sussex Place
Regent's Park
London, London NW1 4SA
United Kingdom

Albert Marcet

Universitat Autònoma de Barcelona - Institut d'Anàlisi Economica CSIC ( email )

Edifici B
Bellaterra, 08193
Spain

Andrew Scott (Contact Author)

London Business School - Department of Economics ( email )

Sussex Place
Regent's Park
London NW1 4SA
United Kingdom
+44 20 7706 6780 (Phone)
+44 20 7402 7875 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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