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Wednesday, July 13, 2016

Maximum sustainable debt: A new measure | VOX, CEPR’s Policy Portal

Maximum sustainable debt: A new measure | VOX, CEPR’s Policy Portal

This column presents a new measure of government debt – maximum sustainable debt. This measure takes account of the fact that a shortfall in growth naturally increases the probability of default, while allowing for the possibility of rollover. Applications to recent data suggest that without sufficient institutional constraints, governments will generally borrow up to a level close to the maximum that can be sustained.

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