 The Welfare Economics of Debt ServiceNo 2655, NBER Working Papers from National Bureau of Economic Research, Inc Abstract: This paper analyzes some of the implications of the dual transfer a debtor nation must undertake to service foreign debt: (a) an internal transfer from the private sector to the public sector; and (b) an external transfer from the domestic economy to foreign creditors. It shows that, under likely circumstances, a real depreciation of the home currency may complicate the internal transfer. As long as non-traded goods are a net source of revenue for the government, the depreciation called for by debt service deteriorates the public sector's terms of trade vis-a-vis the private sector and magnifies the requisite fiscal retrenchment. The paper discusses the role of trade policy (tariffs and export subsidies) in substituting for devaluation. Generating a private-sector surplus via interest-rate policy is shown to have similar costs on the government budget when the public sector has outstanding domestic debt. Date: 1988-07 Published as "The Transfer Problem in Small Open Economies: Exchange Rate and Fiscal Policies for Debt Service," Ricerche Economiche, November 1990. Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:2655 Ordering information: This working paper can be ordered from Access Statistics for this paper More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC. |
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