1 Introduction
This paper considers from an empirical perspective the performance of OECD debt management
between 1970 and 2000. In doing so we seek to provide insights into three key questions i) what
indicators should be used to assess the performance of debt management? ii) how does performance
so measured vary across the OECD? and iii) do these variations have any systematic link to the
structure of outstanding government debt and can conclusions be drawn concerning the optimal
portfolio?
In order to monitor the performance of debt management it is necessary to evaluate outcomes
against some criteria. In practice countries have set a number of different goals - for instance, to
help support monetary policy in influencing short term interest rates, to provide a liquid market
in risk free assets, to minimize borrowing costs, etc.1. In this paper we focus on one specific goal -
namely the role of debt management in providing insurance against budget shocks so as to support
optimal taxation or stabilize the debt-to-GDP ratio (or to minimise variations in the tax rate or in
the debt-to-GDP ratio).
In focusing on this concept of fiscal insurance and the connection it implies between debt
management and fiscal policy we are not asserting that this has been the main aim of government
debt management over our period. In practice the majority of government debt managers make
no explicit reference to fiscal policy and instead focus on aims broadly based around the notion of
“minimizing cost subject to risk”. Despite this policy lacunae we firmly believe debt management
has an important role in supporting fiscal policy and hence focus our paper accordingly2. We also
believe that even if other considerations are paramount in the operation of debt management the
information contained in our measures of fiscal insurance are informative.
Our motivation for focusing on the interaction between debt management and fiscal policy comes
from the optimal taxation literature. For instance, Lucas and Stokey (1983) show how, through
issuing a complete range of Arrow Debreu contingent securities, the government can stabilise the
1See Missale (1999) for a survey.
2Obviously policy perspectives do change over time. Sargent and Wallace (1975) was clearly influential in em-
phasising the links between monetary and fiscal policy. The current literature on optimal fiscal policy and debt
management may have the analagous potential.