Government Debt Policy Research Articles

College Students' Perception of State-Managed Debt

State-managed debt has always been a polemic in every country, including Indonesia. Some people's perceptions did not align with the Government's debt policy, including some college students'students' perceptions. Therefore, this study, which is of significant importance, aims to determine the public's understanding, especially college students, of state-managed debt. The Government values the insights of college students, as their perceptions are crucial in shaping public learning regarding debt management. The research was conducted using a qualitative approach through in-depth interviews with five informants outside Jabodetabek (Jakarta, Bogor, Depok, Tangerang, and Bekasi) in Indonesia. The five informants represent the college student community with different educational backgrounds and genders. Based on the in-depth interviews, the results found that all informants' perceptions described the terminology of state-managed debt sufficiently. Likewise, when they described what the investment was. Despite differences in educational backgrounds, each college student could articulate their perceptions of state-managed debt. The study found that the literature on public finance was still limited. Therefore, this research underscores the potential for growth in public finance literacy among college students, highlighting the crucial and reassuring role of the Government in providing comprehensive lessons and accurate information to the younger generation about the benefits of prudent state-managed debt.

The crowding out effect of local government debt expansion: Insights from commercial credit financing

Understanding the impact of local government debt expansion on microeconomic entities is crucial in evaluating local government debt policies. This study explored the crowding-out effect of local government debt on firms' commercial credit financing. We found that local government debt plays a crucial role in enhancing corporate commercial credit financing by exacerbating the financing constraints faced by firms. Second, the impact of local government debt on commercial credit financing is more pronounced for firms with lower leverage and a more stable capital chain. Third, state-owned enterprises (SOEs) are more susceptible to the impact of local government debt on commercial credit financing compared to private enterprises. And the crowding-out effect of local government debt on firms' commercial credit financing is more pronounced in the regions where the credit market regulation is relatively weaker. Our findings provide valuable insights that can contribute to the reform of the local government debt management system.

Analysis of the impact of local government debt policy on the financial ecological environment-based on debt level and debt structure perspectives

This paper employs panel data from 227 prefecture-level cities in China spanning the period from 2000 to 2020 to investigate the effects and influences of local government debt policies on the financial ecological environment. Considering regional economic foundation, financial development, government governance, and the construction of the social credit system, our analysis reveals the following outcomes regarding debt level and debt structure: Firstly, we find that higher debt levels and an increased proportion of hidden debt at the local government level have impacts on various dimensions of the financial ecological environment. Specifically, debt expansion facilitates regional economic foundations and financial development but hampers government governance and the construction of the social credit system, leading to a deterioration in the development of the financial ecological environment. Furthermore, employing a threshold regression model, we have not identified a significant nonlinear relationship in this context. Secondly, local government debt exhibits a reverse spatial spillover effect on the financial ecological environment of surrounding regions, contrasting with the effects observed within the local area. This effect manifests as the enhancement of the financial ecological environment in neighboring areas.

The influence of government debt policy on the development of Ukraine's economy

The influence of the government's debt policy on the development of Ukraine's economy is analyzed. It is determined that today almost all indicators of debt stability in Ukraine exceed the critical limit, beyond which the state loses the ability to solve debt problems on its own. Thus, during 2014–2021, the domestic public and state-guaranteed debt of Ukraine increased in hryvnia equivalent by 3.9 times and as of the end of 2021 amounted to UAH 1,111.6 billion. The increase in debt was primarily due to direct public debt, which increased 4.1 times during the analyzed period. It is concluded that the scale of government borrowing in Ukraine makes it a threat to the economy, because without a change in the current government debt policy, the risk of the government's inability to meet its obligations to repay and service the debt will increase. Emphasis is placed on rethinking the country's economic policy in the direction of limiting the country's debt dependence, improving the structure of balance of payments and foreign trade balances, a balanced approach to the liberalization of relations in the foreign economic sphere and attracting foreign investment. A detailed analysis of trends in the issuance of domestic and external government bonds, as well as attracting debt financing from international financial organizations. The study of trends, and most importantly the structure of domestic government bonds, suggests that their growth is due to the need to finance not only the state budget deficit, but also the shortcomings and miscalculations of monetary and debt policy, as well as protectionist interests of individual businesses. Emphasis is placed on the fact that a significant share of non-residents' funds in domestic government bonds increases the country's exchange rate and financial vulnerability and is a factor that allows non-residents to influence the foreign exchange market and, accordingly, the national currency and international reserves of Ukraine.

ВПЛИВ БОРГОВОЇ ПОЛІТИКИ УРЯДУ НА РОЗВИТОК ЕКОНОМІКИ УКРАЇНИ

The influence of the government's debt policy on the development of Ukraine's economy is analyzed. It is determined that today almost all indicators of debt stability in Ukraine exceed the critical limit, beyond which the state loses the ability to solve debt problems on its own. Thus, during 2014–2021, the domestic public and state-guaranteed debt of Ukraine increased in hryvnia equivalent by 3.9 times and as of the end of 2021 amounted to UAH 1,111.6 billion. The increase in debt was primarily due to direct public debt, which increased 4.1 times during the analyzed period. It is concluded that the scale of government borrowing in Ukraine makes it a threat to the economy, because without a change in the current government debt policy, the risk of the government's inability to meet its obligations to repay and service the debt will increase. Emphasis is placed on rethinking the country's economic policy in the direction of limiting the country's debt dependence, improving the structure of balance of payments and foreign trade balances, a balanced approach to the liberalization of relations in the foreign economic sphere and attracting foreign investment. A detailed analysis of trends in the issuance of domestic and external government bonds, as well as attracting debt financing from international financial organizations. The study of trends, and most importantly the structure of domestic government bonds, suggests that their growth is due to the need to finance not only the state budget deficit, but also the shortcomings and miscalculations of monetary and debt policy, as well as protectionist interests of individual businesses. Emphasis is placed on the fact that a significant share of non-residents' funds in domestic government bonds increases the country's exchange rate and financial vulnerability and is a factor that allows non-residents to influence the foreign exchange market and, accordingly, the national currency and international reserves of Ukraine.

Debauchery and Original Sin: The Currency Composition of Sovereign Debt

AbstractWe present a model that accounts for the “mystery of original sin” and the surge in local-currency borrowing by emerging economies in the recent decade. We quantitatively investigate the currency composition of sovereign debt in the presence of two types of limited enforcement frictions arising from a government's monetary and debt policy: strategic currency debasement and default on sovereign debt. Local-currency debt obligations act as a better consumption hedge against income shocks than foreign-currency debt because their real value can be affected by monetary policy. However, this provides a government with more temptation to deviate from disciplined monetary policy, thus restricting borrowing in local currency more than in foreign currency. Our model predicts that a country with a less credible monetary policy borrows mainly in foreign currency as a substitute for monetary credibility. An important extension demonstrates that in the presence of an expectational Phillips curve, local-currency debt improves the ability of monetary policymakers to commit.

Управління державним боргом України на сучасному етапі

Abstract. Introduction. The problem of public debt management is one of the main problems in Ukraine. Public debt has a significant impact on the financial system, the state of the economy in the country investment climate, national currency stability. The rapid growth in volumes of a gross external debt and in ratio to GDP increases the currency risks of the country. That’s why public structures must form and implement a clear process of public debt management. Purpose. The main purposes of the article are to investigate the theoretical aspects the management of the external state debt in Ukraine, to analysis of the current state of public debt, to identify the main problems the management of the external state debt and search for ways to improve it. Results. It was researched that the growth of the state debt and expends of its servicing are gaining in Ukraine. It was determined that the structure of public debt is dominated by external debt. Also Ukraine is characterized by large amounts of stateguaranteed debt, which involve additional costs due to the insolvency of borrowers. Ukraine has excessive debt burden mainly through external borrowing. During the study period, the maximum amount of public debt has long exceeded the norms approved by the Budget Code, although in the last two years there has been a stabilization. Therefore, a range of debt management actions have been proposed that can alleviate the problem of over-indebtedness in Ukraine and mitigate the risks associated with a distorted debt structure. As such, debt policy of a government must be based on gradual repayment of debt in foreign currency, optimization of state expenditures, improvement of the system of the national debt, refinement of the conditions by which governments service their debt, etc. Thus the government's debt policy should be based on an improved legal framework for regulating public debt; public debt restructuring; rational and targeted use of loans. In addition, the country should introduce strict control over the spending of funds, ensuring the political and economic development of Ukraine and take incentives to intensify the stock market.

Dynamic Impact of Government Expenditure and Debt Policy Instruments on Agricultural Growth in Nigeria

This research examined the impact of government expenditure and debt policy instruments on agricultural growth in Nigeria for the period 1980-2018. Findings revealed that, for every billion rise in aggregate government expenditure, agricultural growth significantly increased by 1.66%. Additionally, per capital income and inflation were significant determinants of agricultural growth. However, the response of agricultural growth to increased debt was inelastic with a coefficient of -0.3152. Thus, macroeconomic policy instruments dynamics impacted agricultural growth. It recommended increased government expenditure to agricultural sector, education, investing in human capital development through budgetary allocations and intervention funds for increased growth while policy makers should desist from increasing the debt profile as it gave less than proportionate effect on agricultural growth with negative consequences on the Nigerian economy.

ОБЛІГАЦІЇ ВНУТРІШНЬОЇ ДЕРЖАВНОЇ ПОЗИКИ ЯК ІНСТРУМЕНТ ІНВЕСТИЦІЙНОЇ ПОЛІТИКИ КОРПОРАТИВНОГО ПІДПРИЄМСТВА

This paper asserts that domestic government loan bonds is an effective investment tool and offers a framework for evaluating government bonds as an investment instrument within a corporate business. The research findings demonstrate that the investment success of the corporate enterprise depends on domestic market bond liquidity and the risks associated with the external environment uncertainty. The purpose of this study is to assess the role of domestic government loan bonds within corporate investment policy. To achieve the research objective, the following methods have been employed: a synthesis – to identify the nature of corporate investment policy, methods of economic statistical analysis – to provide a government bond market analysis, and comparative structural analysis – to explore the preferences and benefits associated with the use of international practice in the area of developing a government debt policy. Data analysis for the period 2013-2017 indicates that the increase in domestic public debt in Ukraine negatively affects the companies in their decision to invest in government bonds. The operation of the united forces (formerly, the anti-terrorist operation) in Eastern Ukraine has triggered a 10 times increase in domestic public debt compared with the real GDP growth. The public increased to 143,2 billion UAH which was perceived as knock-on effects of inflation and 14% of GDP behind the banking crisis and the cost of its overcoming within 2014-2016. Corporate investing in domestic government loan bonds depends on the area of corporate enterprise operation. It is argued that companies with superior financial performance should invest in bonds, thus contributing to their further growth by creating a solid background for building competitiveness. High risks and low financial capacity characterize other sectors of industry, which company should wait for more information before investing in government bonds. High risks and low finance opportunities feature other industry sectors, and firms in these sectors should anticipate additional information prior to investing into the government bonds.

BUDGET POLICY AS AN INSTRUMENT OF SOCIO-ECONOMIC DEVELOPMENT OF THE COUNTRY

The article defines the basic principles of budget policy formation as a tool for socio-economic development of the country. Budgetary policy has been found to be a powerful tool for ensuring macroeconomic stabilization and further activation of economic development processes. The necessity to study the impact of budgetary policy on the development of the real sector of the economy, to identify the problematic aspects of budgetary regulation of economic growth, to determine the directions of increasing the effectiveness of budgetary policy in the system of socio-economic development of the country is stressed. The main indicators of the budget system in the structure of the gross domestic product of Ukraine are described: revenues of the consolidated budget of Ukraine, expenditures of the consolidated budget of Ukraine, state debt. It is noted that the growth of budget expenditures and gross domestic product of the country is achieved through expansion of aggregate demand in the country, additional financial infusions, which have a positive impact on the pace of socio-economic development. It has been found out that use of the mechanism for financing the priorities of public financial policy at the expense of deficit funds allows to increase money supply in the economy of the country and to create preconditions for its involvement in the real sector of the economy. The features of formation of the mechanism of revenues and expenditures of the budget distribution between different levels of the budget system are generalized and systematized. It is stated that the structure of state budget expenditures is also characterized by a predominance of current expenditures over capital. It has been found that stimulating the development of the real sector of the economy is possible by increasing capital investment, deficit financing included. It is noted that the main source of capital investments in the economy of Ukraine at present is enterprises and organizations own funds. It is proved that the reorientation of government debt policy to financing the development of export and high-tech industries of the national economy is significant. Provision has been made for the feasibility of using public-private partnership mechanisms, which will make it possible to align existing budgetary resources with the volume of state guarantees and increase the efficiency of use of public financial resources in general.

THE FALLACY OF FISCAL DISCIPLINE

Fiscal discipline is commonly evaluated on the basis of the debt–gross domestic product ratio, which exhibits a stock variable measured relative to a flow variable. This way of monitoring debt solvency is arguably not consistent with transversality conditions obtained from optimizing macroeconomic frameworks. In this paper, we consider a wealth-based sustainability index of government debt policy derived from a baseline endogenous growth model. We calculate the index from 1999 onward for countries in which the after-growth real interest rate is positive, consistently with the theoretical setup. Results are radically different from common wisdom. We show that the fiscal position is sustainable for both Germany and Italy, and strongly unsustainable for both Japan and France. Policy implications of our findings are discussed.

Capital taxation and government debt policy with public discounting

This paper characterizes capital taxation and public debt policy in a quantitative macroeconomic model with an impatient government and uncertainty. The government has access to linear taxes on capital and labor, and to non-state-contingent bonds. Government impatience generates positive and empirically realistic long-run levels of both capital taxes and public debt. Prior predictive analysis shows that the simulated model matches the distribution of both variables in a sample of 42 countries, alongside other statistics. The paper then presents econometric evidence that countries with higher political instability, used as an approximation of unobservable public discount rates, have both higher capital taxes and debt.

DEVELOPMENT OF THE MECHANISMS OF COORDINATION OF THE MONETARY AND BUDGET POLICY IN THE CONTEXT OF OVERCOMING THE CONSEQUENCES OF THE BANKING CRISIS

У статті проведено систематизацію основних напрямів розвитку механізмів координації монетарної і бюджетної політики в Україні та визначено, що в сучасних умовах відбувається домінування бюджетної політики уряду над монетарною політикою центрального банку. Обґрунтовано переваги та недоліки використання дискреційної та недискреційної політики, запропоновано систему заходів щодо поєднання правил і процедур розроблення та реалізації монетарної і бюджетної політики, визначено основні напрями вдосконалення боргової та антиінфляційної політики з метою збалансованого розвитку фінансової та грошової систем країни, подолання наслідків банківської кризи, забезпечення загальної макрофінансової стабільності та сталого економічного розвитку.

Capital Taxation and Government Debt Policy with Public Discounting

Abstract This paper characterizes capital taxation and public debt policy in a quantitative macroeconomic model with an impatient government and uncertainty. The government has access to linear taxes on capital and labor, and to non-state-contingent bonds. Government impatience generates positive and empirically realistic long-run levels of both capital taxes and public debt. Prior predictive analysis shows that the simulated model matches the distribution of both variables in a sample of 42 countries, alongside other statistics. The paper then presents econometric evidence that countries with higher political instability, used as an approximation of unobservable public discount rates, have both higher capital taxes and debt.

Evaluation of the Latvian Financial Security: Aspects of Government Debt Policy

Due to increased risk and severity of the global economic and financial crisis, the evaluation of financial security is vital for the national security. Internationally recognized indicators, such as sovereign credit ratings, may overestimate the actual situation due to political reasons. This paper presents a consolidated indicator of the state financial security, which takes into account a number of the state economic and financial parameters. The calculated indicator correlates well with the sovereign ratings for low rating values, but gives more pessimistic estimation for high ratings.

FEATURES OF INFLUENCE OF MACROECONOMIC MEASURES OF TRANSFORMATION ON THE STATE DEBT POLICY

The objective is to study the relationship between the debt policy and vector of macroeconomic measures which is reflected in the transformation of structure of budget deficiency payments. Also, the article defines and characterizes three main phases of the government debt policy: pre-stabilization, stabilization and post-stabilization. The author analyzes main aspects of the relationship between dept policy and monetary one. Methodology. The study is based on the works of domestic and foreign scientists engaged in research of the given problem. Theoretical concepts are supported by statistical data of key macroeconomic indicators of Ukraine’s economy. Results of the survey showed that the relationship between the debt policy and measures of macro-regulation during the transformation has the stable and permanent nature, and the use of certain instruments of government debt management is exclusively possible for a definite direction of macro policy on the one hand, and they are the elements in the system of measures for its implementation on the other hand. In the pre-stabilization phase of transformation the debt policy synthesizes the expansive solutions of monetary and fiscal authorities, and a direct link between them mediate the expansion of demand in the public sector and the preservation of soft budget constraints for micro-units; in the stabilization phase the relationship between fiscal, monetary and debt policy becomes more indirect, but are direct in that part of the borrowing purposes, subordinated to the creation of macro-stabilization mechanism of transformation; in the poststabilization period the role of indirect interconnection between the debt measures and fiscal and monetary decisions increases, but the lack of a deep micro-restructuring and deep systemic and structural reforms cause the deterioration in the macro-economic state of the system, due to which the vector of government borrowing again gravitates toward the field of formation of the mechanism of stabilization. In the post-stabilization period the following contradictions are especially intensely manifested: firstly, the contradictions between the expansive fiscal policy and relatively restrained monetary policy, which is why the maintenance of the exchange rate and inflation on the equilibrium level takes place with the higher interest rates; secondly, there is an enhancement of contradictions within the system of fiscal policy and monetary policy. The formation of consumer-oriented reproduction proportions of GDP is one of the consequences of such a situation.

Government Debt, the Real Interest Rate and External Balance in an Endogenous Growth Model of a Small Open Economy

This paper examines the effects of government debt policies with imperfect substitutability between securities issued by different countries. It puts forward an intertemporal model of a small open economy to analyze the effects of government debt on the real interest rate, economic growth, private consumption and the balance of payments. The model is an endogenous growth, overlapping generations model with convex adjustment costs for investment, and imperfect substitutability between domestic and foreign bonds. It is shown than an increase in the government debt to output ratio causes the spread between the domestic and the foreign real interest rate to rise and the endogenous growth rate to fall. In addition, when domestic government bonds are relatively close substitutes for foreign bonds, the rise in government debt causes a temporary rise in domestic consumption, as current generations view government debt as wealth. The current account moves into deficit, the economy decumulates net foreign assets, and in the new long run equilibrium both the consumption to output ratio and net foreign assets as a proportion of output fall. When domestic government bonds are not close substitutes for foreign bonds, the rise in government debt causes a temporary fall in domestic consumption, as the negative real interest rate effect of the rise in government debt dominates the wealth effect. In this case the current account improves and in the new long run equilibrium both the consumption to output ratio and net foreign assets as a proportion of output rise.

War finance and the baby boom

In this paper, I extend the Barro–Becker model of endogenous fertility to incorporate specific fiscal policies and use it to study the effects of the fiscal policy changes following WWII on fertility in the United States. The US government went through large changes in fiscal policy after the beginning of WWII. The marginal income tax rate for an average American jumped from 4% on average before 1940 to approximately 25% during the war and stayed around 20% afterwards. The government debt–GDP ratio jumped from approximately 30% on average before WWII to 108% in 1946 and then dropped gradually in the following two decades to about 30% again at the end of 1960s. I find that the dramatic increase in the marginal income tax rate was an important cause of the postwar baby boom in the US because it lowered the after-tax wage and thus the opportunity cost of child-rearing. I also find that the differential change in taxes by income was an important reason why the baby boom was more pronounced among richer households (as documented by Jones and Tertilt, 2008). Furthermore, I argue that the government's debt policy may also matter for understanding fertility choices because government debt implies a tax burden on children in the future and thus affects their utility, which is a key determinant of current fertility choice in the Barro–Becker model. The results of a computational experiment show that the US government's postwar debt policy also contributed to the baby boom, but its quantitative importance is relatively small.

Comparative Analysis of the Determinants and Behaviour of Investment Demand between South Africa and Zimbabwe

The study investigates the determinants of private investment in South Africa and Zimbabwe employing annual data over the 1980-2010 periods. The influence of gross domestic product (GDP), government debt, inflation, and interest rate policies are considered. Applied vector autoregressive and error correction models are used to estimate long- and short-run relationships among variables. The results suggest that GDP has a positive effect on private investment. Government debt has a crowding out effect on private investment, and inflation is shown to negatively affect investment. Increases in interest rates discourage private investment in South Africa

Aggressive oil extraction and precautionary saving: Coping with volatility

The effects of stochastic oil demand on optimal oil extraction paths and tax, spending and government debt policies are analyzed when the oil demand schedule is linear and preferences quadratic. Without prudence, optimal oil extraction is governed by the Hotelling rule and optimal budgetary policies by the tax and consumption smoothing principle. Volatile oil demand brings forward oil extraction and induces a bigger government surplus. With prudence, the government depletes oil reserves even more aggressively and engages in additional precautionary saving financed by postponing spending and bringing taxes forward, especially if it has substantial monopoly power on the oil market, gives high priority to the public spending target, is very prudent, and future oil demand has high variance. Uncertain economic prospects induce even higher precautionary saving and, if non-oil revenue shocks and oil revenue shocks are positively correlated, even more aggressive oil extraction. In contrast, prudent governments deliberately underestimate oil reserves which induce less aggressive oil depletion and less government saving, but less so if uncertainty about reserves and oil demand are positively correlated.