The Sustainability of Fiscal Policy in the United States
AbstractThe paper examines the sustainability of U.S. fiscal policy, finding substantial evidence in favor. I summarize the U.S. fiscal record from 1792-2003, critically review sustainability conditions and their testable implications, and apply them to U.S. data. I particularly emphasize the ramifications of economic growth. A “growth dividend” has historically covered the entire interest bill on the U.S. debt. Unit root tests on real series, unscaled by GDP, are distorted by the series’ severe heteroskedasticity. The most credible evidence in favor of sustainability is the robust positive response of primary surpluses to fluctuations in the debt-GDP ratio.
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Bibliographic InfoPaper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 1446.
Date of creation: 2005
Date of revision:
public debt; sustainability; primary surplus; unit root;
This paper has been announced in the following NEP Reports:
- NEP-ACC-2005-04-30 (Accounting & Auditing)
- NEP-ALL-2005-04-30 (All new papers)
- NEP-HIS-2005-04-30 (Business, Economic & Financial History)
- NEP-MAC-2005-04-30 (Macroeconomics)
- NEP-PBE-2005-04-30 (Public Economics)
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