Forget sovereign debt, think sovereign equity


Why don't countries issue part of their debt with equity-like characteristics to increase stability in crises, just like corporations do? You could have treasuries that pay a fixed percentage of tax revenue, GDP, or even GDP growth to the bearer, rather than a predefined interest rate.
Yes, it's a bit too late for Europe now, but moving forward this could be a useful bit of financial innovation.

2 comments:

  1. Robert Johnson Says:

    Interesting idea. It's outside my knowledge area so I don't see all of the implications...but wouldn't this be interesting as a hedge against certain political events and policy choices?

  2. Leigh Caldwell Says:

    Robert Shiller's "trills" concept is exactly this. Perhaps it hasn't taken off because bond investors simply place a really high value on nominal predictability, for reasons of either risk-aversion or institutional/contractual norms. Not sure.