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A Test of Steady-State Government-Debt Neutrality

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  • Evans, Paul

Abstract

This paper investigates whether, in the steady state, the real interest rate is an increasing function of both government debt and government spending. Using data from the period between January 1981 and March 1986, the paper finds no evidence of such a relationship. These data afford an especially powerful test because the ratio of federal debt to trend output, which had fallen from 93 to 33 percent between January 1948 and December 1980, reversed course after the enactment of the Economic Recovery Tax Act, reaching 47 percent in March 1986. Copyright 1989 by Oxford University Press.

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Bibliographic Info

Article provided by Western Economic Association International in its journal Economic Inquiry.

Volume (Year): 27 (1989)
Issue (Month): 1 (January)
Pages: 39-55

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Handle: RePEc:oup:ecinqu:v:27:y:1989:i:1:p:39-55

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Cited by:
  1. Leanne Ussher, 1998. "Do Budget Deficits Raise Interest Rates? A Survey of the Empirical Literature," Working Papers 0005 Classification- JEL:, Department of Economics, Queens College of the City University of New York.
  2. Berument, Hakan, 1998. "Central Bank Independence and Financing Government Spending," Journal of Macroeconomics, Elsevier, vol. 20(1), pages 133-151, January.

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