Performance-sensitive government bonds - A new proposal for sustainable sovereign debt management

Arbeitspapier

We argue that current sovereign debt management lacks important incentives for governments and politicians to fulfill it in a sustainable and long-term orientated way. This paper outlines that the mechanisms to solve sovereign debt problems within the EMU are not only missing the right incentives but also setting the wrong ones. In contrast to current policy, we argue that only an instrument which is sufficiently sensitive to the performance of a country (i.e. its debt level) will motivate the players to engage in sustainable debt management. Specifically, we propose performance-sensitive government bonds (PSGB) where coupon payments are closely linked to debt policy, giving strong incentives to limit debt levels and to timely restructure the economy.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Working Papers in Economics and Statistics ; No. 2011-24

Classification and Topics

• Classification: Wirtschaft ; Asset Pricing; Trading Volume; Bond Interest Rates ; Contingent Pricing; Futures Pricing; option pricing ; National Deficit; Surplus ; National Debt; Debt Management; Sovereign Debt
• Subject: Sovereign debt management ; government bonds ; incentives ; EMU ; debt crisis ; Öffentliche Anleihe ; Debt Management ; Nachhaltigkeit ; Europäische Wirtschafts- und Währungsunion ; EU-Staaten

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Bank, Matthias ; Kupfer, Alexander ; Sendlhofer, Rupert
• Event: Veröffentlichung
• (who): University of Innsbruck, Research Platform Empirical and Experimental Economics (eeecon)
• (where): Innsbruck
• (when): 2011

Further information

• Handle: http://hdl.handle.net/10419/73553
• Last update: 04.09.0373, 6:48 AM CET