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The Behavior Of U.S. Public Debt And Deficits

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Author Info
Henning Bohn

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Abstract

How do governments react to the accumulation of debt? Do they take corrective measures, or do they let the debt grow? Whereas standard time series tests cannot reject a unit root in the U.S. debt-GDP ratio, this paper provides evidence of corrective action: the U.S. primary surplus is an increasing function of the debt-GDP ratio. The debt-GDP ratio displays mean-reversion if one controls for war-time spending and for cyclical fluctuations. The positive response of the primary surplus to changes in debt also shows that U.S. fiscal policy is satisfying an intertemporal budget constraint. © 2000 the President and Fellows of Harvard College and the Massachusetts Institute of Technology

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Article provided by MIT Press in its journal The Quarterly Journal of Economics.

Volume (Year): 113 (1998)
Issue (Month): 3 (August)
Pages: 949-963
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Handle: RePEc:tpr:qjecon:v:113:y:1998:i:3:p:949-963

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