Managing government debt

Wei Jiang, Thomas J. Sargent, Neng Wang, Jinqiang Yang

    Research output: Contribution to journalArticlepeer-review

    Abstract

    To construct a stochastic version of [R. J. Barro, J. Polit. Econ.87, 940-971 (1979)] normative model of tax rates and debt/GDP dynamics, we add risks and markets for trading them along lines suggested by [K. J. Arrow, Rev. Econ. Stud.31, 91-96 (1964)] and [R. J. Shiller, Creating Institutions for Managing Society's Largest Economic Risks (OUP, Oxford, 1994)]. These modifications preserve Barro's prescriptions that a government should keep its debt-gross domestic product (GDP) ratio and tax rate constant over time and also prescribe that the government insure its primary surplus risk by selling or buying the same number of shares of a Shiller macro security each period.

    Original languageEnglish (US)
    Pages (from-to)e2318365121
    JournalProceedings of the National Academy of Sciences of the United States of America
    Volume121
    Issue number11
    DOIs
    StatePublished - Mar 12 2024

    Keywords

    • Ricardian equivalence
    • risk premium
    • tax smoothing

    ASJC Scopus subject areas

    • General

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