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The Sustainability of Fiscal Policy in the United States

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Author Info
Henning Bohn ()

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Abstract

The 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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Paper provided by CESifo GmbH in its series CESifo Working Paper Series with number CESifo Working Paper No. 1446.

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Date of creation: 2005
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Handle: RePEc:ces:ceswps:_1446

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Related research
Keywords: public debt sustainability primary surplus unit root

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Find related papers by JEL classification:
E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General
H00 - Public Economics - - General - - - General
H60 - Public Economics - - National Budget, Deficit, and Debt - - - General

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  1. Carlos Fonseca Marinheiro, 2005. "Sustainability of Portuguese Fiscal Policy in Historical Perspective," CESifo Working Paper Series CESifo Working Paper No. , CESifo GmbH. [Downloadable!]
  2. Carlos José Fonseca Marinheiro, 2005. "Sustainability of Portuguese Fiscal Policy in Historical Perspective," Working Papers de Economia (Economics Working Papers) 32, Departamento de Economia, Gestão e Engenharia Industrial, Universidade de Aveiro. [Downloadable!]
  3. Yilmaz Akyüz, 2007. "Debt Sustainability in Emerging Markets: A Critical Appraisal," Working Papers 61, United Nations, Department of Economics and Social Affairs. [Downloadable!]
  4. Enrique G. Mendoza & Jonathan D. Ostry, 2007. "International Evidence on Fiscal Solvency: Is Fiscal Policy "Responsible"?," NBER Working Papers 12947, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  5. Roel Beetsma & Alex Cukierman & Massimo Giuliodori, 2005. "Wars, Redistribution and Civilian Federal Expenditures in the US over the Twentieth Century," DNB Working Papers 057, Netherlands Central Bank, Research Department. [Downloadable!]
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  6. Vito Polito & Mike Wickens, 2005. " Measuring Fiscal Sustainability," CDMA Conference Paper Series 0503, Centre for Dynamic Macroeconomic Analysis. [Downloadable!]
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  7. Evan Lau & Ahmad Zubaidi Baharumshah, 2005. "Assessing The Mean Reversion Behavior Of Fiscal Policy: The Case Of Asian Countries," Macroeconomics 0504002, EconWPA. [Downloadable!]
  8. Charles Engel, 2005. "The US Current Account Deficit: A Re-examination of the Role of Private Saving," RBA Research Discussion Papers rdp2005-09, Reserve Bank of Australia. [Downloadable!]
  9. Ananda Jayawickrama & Tilak Abeysinghe, 2006. "Sustainability Of Fiscal Deficits: The U.S. Experience 1929-2004," SCAPE Policy Research Working Paper Series 05xx, National University of Singapore, Department of Economics, SCAPE. [Downloadable!]
  10. Giannitsarou, Chryssi & Scott, Andrew, 2006. "Inflation Implications of Rising Government Debt," CEPR Discussion Papers 5961, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  11. Vito Polito & Mike Wickens, 2007. "Measuring the Fiscal Stance," Discussion Papers 07/14, Department of Economics, University of York. [Downloadable!]
  12. Luiz Renato Regis de Oliveira Lima & Raquel M. B. Sampaio & Wagner Piazza Gaglianone, 2006. "Debt ceiling and fiscal sustainability in Brazil: a quantile autoregression approach," Economics Working Papers (Ensaios Economicos da EPGE) 631, Graduate School of Economics, Getulio Vargas Foundation (Brazil). [Downloadable!]
  13. Peter Claeys, 2007. "Sustainability of EU fiscal policies, a panel test," IREA Working Papers 200702, University of Barcelona, Research Institute of Applied Economics, revised Jan 2007. [Downloadable!]
  14. Gebhard Kirchgässner & Silika Prohl, 2006. "Sustainability of Swiss Fiscal Policy," CESifo Working Paper Series CESifo Working Paper No. , CESifo GmbH. [Downloadable!]
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  15. Silika Prohl & Friedrich G. Schneider, 2006. "Sustainability of Public Debt and Budget Deficit: Panel cointegration analysis for the European Union Member countries," Economics working papers 2006-10, Department of Economics, Johannes Kepler University Linz, Austria. [Downloadable!]
  16. Gottfried Haber & Reinhard Neck, 2006. "Sustainability of Austrian Public Debt: A Political Economy Perspective," CESifo Working Paper Series CESifo Working Paper No. , CESifo GmbH. [Downloadable!]
  17. António Afonso, 2005. "Ricardian Fiscal Regimes in the European Union," Working Papers 2005/18, Department of Economics at the School of Economics and Management (ISEG), Technical University of Lisbon.. [Downloadable!]
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  18. Charles Engel & John H. Rogers, 2006. "The U.S. Current Account Deficit and the Expected Share of World Output," NBER Working Papers 11921, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  19. Suescun, Rodrigo, 2005. "Fiscal space for investment in infrastructure in Colombia," Policy Research Working Paper Series 3629, The World Bank. [Downloadable!]
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