In this paper, we revisit Uribe's `Fiscal Theory of Sovereign Risk' suggesting a trade-off between stabilizing inflation and suppressing default. We develop a class of dynamic stochastic general equilibrium models with nominal rigidities and compare two de facto inflation-stabilization policies; namely, optimal monetary policy and optimal monetary and fiscal policy with an interest rate spread-minimizing policy that completely suppresses default. Under the optimal monetary and fiscal policy, not only the nominal interest rate but also the tax rate works to minimize welfare costs through stabilizing inflation. Under the optimal monetary and the interest rate spread-minimizing policies, only the nominal interest rate is available as a policy instrument. Under the optimal monetary and fiscal policy, both inflation and the output gap completely stabilize, although these fluctuate under the optimal monetary policy. In addition, the volatility of the default rate under the optimal monetary and fiscal policy is considerably lower than under the optimal monetary policy. Thus, there is not necessarily a trade-off between stabilizing inflation and suppressing default. While the optimal monetary and fiscal policy stabilizes both inflation and default, the interest rate spread-minimizing policy makes the inflation rate volatile. However, inflation is not especially volatile when prices are sufficiently sticky. Thus, the trade-off between stabilizing inflation and suppressing default is then not as severe as that suggested by Uribe, even when there is a trade-off. In sum, our results are: 1) there is not necessarily a trade-off between stabilizing inflation and suppressing default, and 2) the trade-off between stabilizing inflation and suppressing default is not as severe as Uribe suggests. As policy implications, we argue: 1) we can practically solve the trade-off between stabilizing inflation and suppressing default by adopting optimal monetary and fiscal policy, and 2) the interest rate spread-minimizing policy does not represent an inferior policy from the viewpoint of dissolving the trade-off between stabilizing inflation and suppressing default if price stickiness is sufficiently high.