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

Matthias Bank (), Alexander Kupfer () and Rupert Sendlhofer ()

Working Papers from Faculty of Economics and Statistics, Universität Innsbruck

Abstract: 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.

Keywords: Sovereign debt management; government bonds; incentives; EMU; debt crisis (search for similar items in EconPapers)
JEL-codes: G12 G13 H62 H63 (search for similar items in EconPapers)
Pages: 37
Date: 2011-10
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Persistent link: https://EconPapers.repec.org/RePEc:inn:wpaper:2011-24

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