This paper analyses public debt sustainability in a stochastic environment. The model is cast as a repeated game between the government and private investors. A small risk of unsustainability may bring about a much larger risk of illiquidity. The main conclusion calls for as a redefinition of what can be seen as a “sound” fiscal stance.
BESANCENOT, D., HUYNH, K. et VRANCEANU, R. (2003). Dette publique : du risque d’insoutenabilité au risque d’illiquidité. Revue Economique, pp. 773-784.