Long-Term Strategies to Reduce Public Debt from a Historical Perspective
-
Thomas Mayer
Abstract
Public debt can be reduced in three ways: (1) repayment; (2) default; and (3) indirect default through monetary financing accompanied by debasement or followed by currency reform. In the course of history, repayment was more the exception than the rule, default often the only available way when a government had no control over the currency in which it borrowed, and indirect default more the rule than the exception. In this paper we review the three ways of debt reduction with exemplary references to historical events. We conclude that financial repression supplemented with debt repayment is likely to be the preferred way for public debt reduction today. The alternative would be currency reform.
References
Abbas, A., N. Belhocine, A. El Ganainy, and M. Horton. 2010. “A Historical Debt Database.” In IMF Working Paper WP10/245.10.5089/9781455209453.001Search in Google Scholar
Escolano, J. 2010. A Practical Guide to Public Debt Dynamics, Fiscal Sustainability, and Cyclical Adjustment of Budgetary Aggregates. Washington: IMF, Fiscal Affairs Department.10.5089/9781462396955.005Search in Google Scholar
European Commission. 2022. Building an Economic Governance Framework Fit for the Challenges Ahead: Press release.Search in Google Scholar
Georgieva, K. 2023. Confronting Fragmentation where it Matters Most: Trade, Debt, and Climate Action. Washington: IMF Blog.Search in Google Scholar
International Monetary Fund. 2022. Annual Report – Debt Dynamics. Washington: International Monetary Fund.Search in Google Scholar
Mayer, T., and G. Schnabl. 2023. “How to Escape from the Debt Trap: Lessons from the Past.” The World Economy 46 (4): 991–1016. https://doi.org/10.1111/twec.13382.Search in Google Scholar
McKinnon, R., and E. Shaw. 1973. Financial Deepening in Economic Development. Washington: Brookings Institution.Search in Google Scholar
McKinnon, R. 1973. Money and Capital in Economic Development. Washington: Brookings Institution.Search in Google Scholar
Reinhart, C. M., and M. B. Sbrancia. 2011. “The Liquidation of Government Debt.” In NBER Working Paper 16893. Also available at: http://www.nber.org/papers/w16893.10.3386/w16893Search in Google Scholar
Vásquez, I. 1996. “The Brady Plan and Market-Based Solutions to Debt Crises.” Cato Journal 16 (2): 233–43.Search in Google Scholar
© 2023 Walter de Gruyter GmbH, Berlin/Boston
Articles in the same Issue
- Frontmatter
- Editorial
- The Economists’ Voice, June Issue 2023, Editorial
- Policy Papers
- Davids and Goliaths: Hidden Champions in an Age of Industrial Policy
- Can You Have Your Corporate Wokeism and Eat it too?
- Lessons from Latin America Dollarization in the Twenty First Century
- Measuring Communication Quality of Interest Rate Announcements
- The Political Economy of Transatlantic Security – A Policy Perspective
- Policy Forum: Monetary Policy and the Threat of Fiscal Dominance
- Apolitical Money – An Illusion?
- The ECB’s Transmission Protection Instrument and Fiscal Stability
- Debt Sustainability in the Emerging New EU Fiscal Framework: A Major Change
- Government Bond Spreads in the Euro Area
- Selective Bond Purchases – May the ECB Chose Winners and Losers?
- Britain’s Failed Attempt at Monetary and Fiscal Exceptionalism
- Government Debt and Monetary Policy Perspectives in Japan
- Long-Term Strategies to Reduce Public Debt from a Historical Perspective
Articles in the same Issue
- Frontmatter
- Editorial
- The Economists’ Voice, June Issue 2023, Editorial
- Policy Papers
- Davids and Goliaths: Hidden Champions in an Age of Industrial Policy
- Can You Have Your Corporate Wokeism and Eat it too?
- Lessons from Latin America Dollarization in the Twenty First Century
- Measuring Communication Quality of Interest Rate Announcements
- The Political Economy of Transatlantic Security – A Policy Perspective
- Policy Forum: Monetary Policy and the Threat of Fiscal Dominance
- Apolitical Money – An Illusion?
- The ECB’s Transmission Protection Instrument and Fiscal Stability
- Debt Sustainability in the Emerging New EU Fiscal Framework: A Major Change
- Government Bond Spreads in the Euro Area
- Selective Bond Purchases – May the ECB Chose Winners and Losers?
- Britain’s Failed Attempt at Monetary and Fiscal Exceptionalism
- Government Debt and Monetary Policy Perspectives in Japan
- Long-Term Strategies to Reduce Public Debt from a Historical Perspective
