DP12755 Financial Policy

Author(s): Dirk Niepelt
Publication Date: February 2018
Keyword(s): debt, Debt Structure, Financial policy
JEL(s): E6, F3, H6
Programme Areas: Public Economics, International Macroeconomics and Finance
Link to this Page: www.cepr.org/active/publications/discussion_papers/dp.php?dpno=12755

This paper reviews theoretical results on financial policy. We use basic accounting identities to illustrate relations between gross assets and liabilities, net debt positions and the appropriation of (primary) budget surplus funds. We then discuss Ramsey policies, answering the question how a committed government may use financial instruments to pursue its objectives. Finally, we discuss additional roles for financial policy that arise as a consequence of political frictions, in particular lack of commitment.