Debt Sustainability in Advanced Economies (Ghosh et al.)

Fiscal Space by Jonathan D. Ostry, Atish R. Ghosh, Jun I. Kim, Mahvash S. Qureshi published by IMF. “In this paper, we reexamine the issue of debt sustainability in a large group of advanced economies. Our hypothesis is that, when debt is in a moderate range, its dynamics are sustainable in the sense that increases in debt elicit sufficient increases in primary fiscal balances to stabilize the debt-to-GDP ratio.”  Fiscal fatigue, fiscal space and debt sustainability in advanced economies by Atish R. Ghosh, Jun I. Kim, Enrique G. Mendoza, Jonathan D. Ostry published by NBER. “How high can public debt rise without compromising fiscal solvency? We answer this question using a stochastic ability-to-pay model of sovereign default in which risk-neutral investors lend to a government that displays ‘fiscal fatigue,’ because its ability to increase primary balances cannot keep pace with rising debt.”