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Debt management game and debt ceiling

Author

Listed:
  • Felix Dammann

    (Universität Bielefeld = Bielefeld University)

  • Néofytos Rodosthenous

    (UCL - University College of London [London])

  • Stéphane Villeneuve

    (TSE-R - Toulouse School of Economics - UT Capitole - Université Toulouse Capitole - UT - Université de Toulouse - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement)

Abstract

We introduce a non zero-sum game between a government and a legislative body to study the optimal level of debt. We succeed in characterising Nash equilibria in the class of Skorokhodreflection policies which implies that the legislator imposes a debt ceiling. In addition, we highlight the importance of the time preferences in the magnitude of the optimal level of the statutory debt ceiling. In particular, we show that laissez-faire policy can be optimal for high values of the legislator's discount rate.

Suggested Citation

  • Felix Dammann & Néofytos Rodosthenous & Stéphane Villeneuve, 2025. "Debt management game and debt ceiling," Working Papers hal-04969514, HAL.
    • Handle: RePEc:hal:wpaper:hal-04969514
    Note: View the original document on HAL open archive server: https://hal.science/hal-04969514v1
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