{
  "title": "When Should Public Debt Be Reduced?",
  "publication": "Staff Discussion Notes, June 1, 2015",
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  "summary": "What considerations should guide public debt policy going forward? Should debt be reduced to achieve normative anchors (such as 60 percent of GDP), should it be increased further to finance a big public investment push, or should the existing debt be serviced forever?",
  "sections": [
    {
      "heading": "Main argument",
      "content": "- For countries with ample fiscal space (little risk of encountering a fiscal crisis), raising distortionary taxes merely to bring the debt down is a treatment cure that is worse than the disease.\n- High public debt is costly, but it is a sunk cost only made worse by efforts to pay down the debt through distortionary taxation.\n- Living with the debt is the welfare-maximizing policy in such circumstances."
    },
    {
      "heading": "Key findings",
      "content": "- Normative anchors (such as 60 percent of GDP) should not automatically dictate debt reduction when fiscal space is ample.\n- Decisions about whether to increase debt to finance a big public investment push must account for the additional servicing costs and the associated distortionary taxation from the resulting buildup of public debt.\n- Golden-rule considerations remain salient when evaluating public investment versus debt servicing."
    },
    {
      "heading": "Policy recommendations",
      "content": "- Do not raise distortionary taxes solely to reduce existing public debt in economies with ample fiscal space.\n- When considering a large public investment push funded by borrowing, explicitly account for:\n  - the additional debt-servicing costs, and\n  - the distortionary taxation required to service that additional debt.\n- Apply golden-rule principles to ensure public investment returns justify the additional borrowing and servicing burden."
    },
    {
      "heading": "Considerations and conceptual points",
      "content": "- Debt reduction should be guided by country-specific fiscal space and crisis risk, not by universal numeric anchors alone.\n- The welfare-optimal choice can be to \"live with the debt\" rather than incur welfare losses through distortionary fiscal consolidation.\n- The tradeoff between public investment benefits and the costs of increased debt servicing is central to the decision framework.\n\nWhen Should Public Debt Be Reduced? — Jonathan David Ostry, Atish R. Ghosh, Raphael A Espinoza; June 1, 2015.\n\n---\n\n Content in this bundle\n\n- sdn1510\n  - sdn1510 (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - sdn1510 (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\nSource: https://www.imf.org/en/publications/staff-discussion-notes/issues/2016/12/31/when-should-public-debt-be-reduced-42931"
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    "Authors: Jonathan David Ostry, Atish R. Ghosh, Raphael A Espinoza",
    "Published: June 1, 2015",
    "Series: Staff Discussion Notes",
    "DOI: https://doi.org/10.5089/9781498379205.006",
    "For countries with ample fiscal space (little risk of encountering a fiscal crisis), raising distortionary taxes merely to bring the debt down is a treatment cure that is worse than the disease.",
    "High public debt is costly, but it is a sunk cost only made worse by efforts to pay down the debt through distortionary taxation.",
    "Living with the debt is the welfare-maximizing policy in such circumstances.",
    "Normative anchors (such as 60 percent of GDP) should not automatically dictate debt reduction when fiscal space is ample.",
    "Decisions about whether to increase debt to finance a big public investment push must account for the additional servicing costs and the associated distortionary taxation from the resulting buildup of public debt.",
    "Golden-rule considerations remain salient when evaluating public investment versus debt servicing.",
    "Do not raise distortionary taxes solely to reduce existing public debt in economies with ample fiscal space.",
    "When considering a large public investment push funded by borrowing, explicitly account for:",
    "Apply golden-rule principles to ensure public investment returns justify the additional borrowing and servicing burden.",
    "Debt reduction should be guided by country-specific fiscal space and crisis risk, not by universal numeric anchors alone.",
    "The welfare-optimal choice can be to \"live with the debt\" rather than incur welfare losses through distortionary fiscal consolidation.",
    "The tradeoff between public investment benefits and the costs of increased debt servicing is central to the decision framework.",
    "**_sdn1510**"
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