a column by Martin Ellison and Andrew Scott for VOX: CEPR's Policy Portal
A new dataset for the market value of British government debt makes a long-run analysis of fiscal sustainability and debt management possible. It shows that the 20th century saw a shift to financing debt by inflation and low bondholder returns, rather than through fiscal surpluses. This column uses a counterfactual analysis to show that long bonds have been an expensive way of financing debt, especially after a financial crisis. Had the government issued only three-year bonds since 1914, the level of debt in 2017 would have been lower by 28% of GDP.
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I must say that despite being professors of this and that (mainly, of course, economics) the writers for VOX manage to make their subjects understandable (sort of).
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