Advanced Search
MyIDEAS: Login to save this book chapter or follow this series

Possible Macroeconomic Consequences of Large Future Federal Government Deficits

In: Tax Policy and the Economy, Volume 25

Contents:

Author Info

  • Ray C. Fair

Abstract

This paper uses a multicountry macroeconometric model to analyze possible macroeconomic consequences of large future U.S. federal government deficits. The analysis has the advantage of accounting for the endogeneity of the deficit. In the baseline run, which assumes no large tax increases or spending cuts and no bad dollar and stock market shocks, the debt/GDP ratio rises substantially through 2020. The estimates from this run are in line with other estimates. Various experiments off the baseline run are then done. If the dollar depreciates, inflation increases but the effect on the debt/GDP ratio is modest. It does not appear that the United States can inflate its way out of its debt problem. If U.S. stock prices fall, this makes matters worse since output is lower because of a negative wealth effect. Personal tax increases or transfer payment decreases of three percent of nominal GDP solve the debt problem, at a cost of a real output loss of about 1.6 percent over the next decade. The Fed's ability to offset these losses is modest according to the model. Introducing a national sales tax is more contractionary than is increasing personal income taxes or decreasing transfer payments.

(This abstract was borrowed from another version of this item.)

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.nber.org/chapters/c12223.pdf
Download Restriction: no

Bibliographic Info

as in new window

This chapter was published in:

  • Jeffrey Brown, 2011. "Tax Policy and the Economy, Volume 25," NBER Books, National Bureau of Economic Research, Inc, number brow10-1, October.
    This item is provided by National Bureau of Economic Research, Inc in its series NBER Chapters with number 12223.

    Handle: RePEc:nbr:nberch:12223

    Contact details of provider:
    Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
    Phone: 617-868-3900
    Email:
    Web page: http://www.nber.org
    More information through EDIRC

    Related research

    Keywords:

    Other versions of this item:

    Find related papers by JEL classification:

    References

    References listed on IDEAS
    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
    as in new window
    1. Ray C. Fair, 2001. "Estimates of the Effectiveness of Monetary Policy," Cowles Foundation Discussion Papers, Cowles Foundation for Research in Economics, Yale University 1298, Cowles Foundation for Research in Economics, Yale University, revised Jun 2003.
    2. Jordi Galí & Mark Gertler, 2007. "Macroeconomic modeling for monetary policy evaluation," Economics Working Papers 1039, Department of Economics and Business, Universitat Pompeu Fabra, revised Jul 2007.
    3. Ray C. Fair, 2009. "Has Macro Progressed?," Cowles Foundation Discussion Papers, Cowles Foundation for Research in Economics, Yale University 1728, Cowles Foundation for Research in Economics, Yale University, revised Jul 2010.
    4. Ray C. Fair, 2009. "Analyzing Macroeconomic Forecastability," Cowles Foundation Discussion Papers, Cowles Foundation for Research in Economics, Yale University 1706, Cowles Foundation for Research in Economics, Yale University, revised Aug 2010.
    5. Fair, Ray C., 2008. "Testing price equations," European Economic Review, Elsevier, Elsevier, vol. 52(8), pages 1424-1437, November.
    6. Ray Fair, 2009. "Analyzing Macroeconomic Forecastability," Yale School of Management Working Papers, Yale School of Management amz2443, Yale School of Management, revised 01 Oct 2009.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as in new window

    Cited by:
    1. Ray C. Fair, 2010. "Estimated Macroeconomic Effects of the U.S. Stimulus Bill," Cowles Foundation Discussion Papers, Cowles Foundation for Research in Economics, Yale University 1756, Cowles Foundation for Research in Economics, Yale University.

    Lists

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    Statistics

    Access and download statistics

    Corrections

    When requesting a correction, please mention this item's handle: RePEc:nbr:nberch:12223. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.