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Reducing Debt Short of Default

If debt is too high, what policies are available to governments to reduce it? This chapter will go through all options, short of default. It will begin by introducing the standard debt accumulation equation, noting the key relationships, such as the growth-interest rate differential; and inter-temporal dynamics. Once this is established, the more conventional strategies for reducing debt – promoting growth and fiscal consolidation – will be explored. The chapter will then move on to more unconventional policies, such as using the central bank’s balance sheet and the role of financial repression. There will also, inevitably, need to be a discussion of how these various options come together in a strategy, learning from history, especially the post-WW2 debt consolidations.