Boosting Fiscal Space

Book excerpt: Can debt management policy provide a way to increase fiscal space for a given path of primary fiscal balances? This note explores the role of two such policies: issuance of state-contingent debt; and issuance of longer maturity debt. New analytical models determine the debt limit and the default risk under uncertainty, and undertake numerical simulations to gauge the practical significance of the effect of debt management policies on fiscal space. The results suggest that, by managing debt along these two dimensions, economically salient gains in fiscal space are plausible for advanced and emerging markets.