GDP-linked bonds and economic growth

Zarko Kalamov and Karl J. Zimmermann

Journal of International Money and Finance, 2023, vol. 137, issue C

Abstract: We analyze the implications of introducing GDP-linked bonds for economic growth. First, we model a stochastically growing small open economy. The government borrows from the international financial market, collects tax revenue, and provides a public infrastructure good. Sovereign debt may be both conventional and indexed to GDP. Second, we calibrate the model for a developing country. The introduction of GDP-linked bonds increases the optimal debt-to-GDP ratio, public-to-private capital ratio, and tax rate. It also exerts a small negative effect on the mean GDP growth rate as well as a small positive welfare impact.

Keywords: Public debt; GDP-linked bonds; Economic growth (search for similar items in EconPapers)
JEL-codes: E62 H4 H54 H63 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jimfin:v:137:y:2023:i:c:s0261560623001195

DOI: 10.1016/j.jimonfin.2023.102918

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