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Journal of Economic Perspectives

ISSN 0895-3309 (Print) | ISSN 1944-7965 (Online)

Debt Revenue and the Sustainability of Public Debt

  • Ricardo Reis
Journal of Economic Perspectives
vol. 36, no. 4, Fall 2022
(pp. 103–24)
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Abstract

While public debt has risen in the last two decades, the return that it offers to investors has fallen, especially relative to the return on private investment. This creates a revenue for the government as the supplier of the special services offered by public bonds, which include storage of value, safety, liquidity, and reprieve from repression. The present value of this debt revenue is large relative to the stock of public debt, keeping it sustainable even as the present value of primary balances is zero or negative. It gives rise to different policy tradeoffs than the conventional analysis of primary balances and makes different recommendation on the effects of austerity, the optimal amount of debt, or the spillovers between monetary and fiscal policy.

Citation

Reis, Ricardo. 2022. "Debt Revenue and the Sustainability of Public Debt." Journal of Economic Perspectives, 36 (4): 103–24. DOI: 10.1257/jep.36.4.103

Additional Materials

JEL Classification

  • E23 Macroeconomics: Production
  • E52 Monetary Policy
  • E62 Fiscal Policy
  • H61 National Budget; Budget Systems
  • H62 National Deficit; Surplus
  • H63 National Debt; Debt Management; Sovereign Debt
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