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dc.titleDebt Ceiling Rules under Intermediate Commitment: Discussion Paper
dc.contributor.authorArce, Fernando
dc.contributor.authorVilla, Alessandro T
dc.contributor.orgunitDepartment of Research and Chief Economist
dc.coverageArgentina
dc.date.available2025-05-27T00:05:00
dc.date.issue2025-05-27T00:05:00
dc.description.abstractFiscal rules can help countries with long-term debt overcome time-inconsistent default incentives, but enforcement is often imperfect. We integrate an optimal fiscal policy framework under partial commitment with a sovereign default model featuring long-term debt, introducing an endogenously announced debt ceiling as a fiscal rule. First, we analyze a baseline environment where governments announce a ceiling each period and incur a proportional cost for issuing above it. Second, we extend the model to a political economy setting with heterogeneous agents, where competing parties renegotiate the inherited ceiling, thereby microfounding the cost. The ceiling reduces debt dilution but limits fiscal flexibility. Calibrated to Argentina, our counterfactual shows that welfare gains from such a rule are possible but not guaranteed, a finding that persists in the fully microfounded model.
dc.format.extent11
dc.identifier.doihttp://dx.doi.org/10.18235/0013547
dc.identifier.urlhttps://publications.iadb.org/publications/english/document/Debt-Ceiling-Rules-under-Intermediate-Commitment-Discussion-Paper.pdf
dc.language.isoen
dc.publisherInter-American Development Bank
dc.subjectFiscal Policy
dc.subjectFiscal Rule
dc.subjectSovereign Default
dc.subjectPolitical Economy
dc.subjectFinancial Bond
dc.subjectConflicts Resolution
dc.subjectTaxation
dc.subject.jelcodeE32 - Business Fluctuations • Cycles
dc.subject.jelcodeE44 - Financial Markets and the Macroeconomy
dc.subject.jelcodeF41 - Open Economy Macroeconomics
dc.subject.jelcodeG01 - Financial Crises
dc.subject.jelcodeG28 - Government Policy and Regulation
dc.subject.keywordsLimited commitment;Political constraints
idb.identifier.pubnumberIDB-DP-01092
idb.operationRG-K1098
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