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Public Debt in the USA: How Much, How Bad and Who Pays?

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  • Willem H. Buiter

Abstract

The USA is in the middle of the pack of industrial countries as regards the public debt-GOP and public deficit-GOP ratios. The period since 1980 is the only peace-time period outside the Great Depression to see a sustained increase in the debt-GOP ratio. The budgetary retrenchment planned by the Clinton administration is likely to prove insufficient to achieve a sustainable path. although the remaining permanent primary (noninterest) gap is small: between 0.1% and 1.0% of GOP. The maximal amount of seigniorage revenue that can be extracted at a constant rate of inflation is not far from the recent historical value of less that 0.5% of GOP. Subtracting net public sector investment from the conventional budget deficit is likely to overstate the government revenue producing potential of public sector investment. Public debt matters when markets are incomplete and/or lump-sum taxes are restricted. Future interest payments associated with the public debt are not equivalent to currently expected future transfer payments. Even ignoring the distortionary character of most real-world taxes and transfers. and holding constant the government's exhaustive spending program, the "generational accounts" are therefore not a sufficient statistic for the effect on aggregate consumption of the government's tax-transfer program. Solving the immediate budgetary problems still leaves the much more serious macroeconomic problems of an undersized US Federal government sector and an inadequate US national saving rate.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 4362.

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Date of creation: May 1993
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Handle: RePEc:nbr:nberwo:4362

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  1. Willem H. Buiter, 1988. "Some Thoughts on the Role of Fiscal Policy in Stabilisation and Structural Adjustment in Developing Countries," NBER Working Papers 2603, National Bureau of Economic Research, Inc.
  2. Wallace, Neil, 1981. "A Modigliani-Miller Theorem for Open-Market Operations," American Economic Review, American Economic Association, vol. 71(3), pages 267-74, June.
  3. Barro, Robert J., 1974. "Are Government Bonds Net Wealth?," Scholarly Articles 3451399, Harvard University Department of Economics.
  4. Jeffrey A. Frankel & Michael P. Dooley & Donald Mathieson, 1986. "International Capital Mobility in Developing Countries vs. Industrial Countries: What do Saving-Investment Correlations Tell Us?," NBER Working Papers 2043, National Bureau of Economic Research, Inc.
  5. Martin Feldstein & Charles Horioka, 1979. "Domestic Savings and International Capital Flows," NBER Working Papers 0310, National Bureau of Economic Research, Inc.
  6. Laurence J. Kotlikoff, 1989. "From Deficit Delusion to the Fiscal Balance Rule: Looking For an Economically Meaningful Way to Assess Fiscal Policy," NBER Working Papers 2841, National Bureau of Economic Research, Inc.
  7. Olivier Jean Blanchard, 1990. "Suggestions for a New Set of Fiscal Indicators," OECD Economics Department Working Papers 79, OECD Publishing.
  8. Buiter, W.H. & Corsetti, G. & Roubini, N., 1992. "Excessive Deficits: Sense and Nonsence in the Treaty of Maastricht," Papers 674, Yale - Economic Growth Center.
  9. B. Douglas Bernheim, 1987. "Ricardian Equivalence: An Evaluation of Theory and Evidence," NBER Chapters, in: NBER Macroeconomics Annual 1987, Volume 2, pages 263-316 National Bureau of Economic Research, Inc.
  10. Chamley, Christophe & Polemarchakis, Herakles, 1984. "Assets, General Equilibrium and the Neutrality of Money," Review of Economic Studies, Wiley Blackwell, vol. 51(1), pages 129-38, January.
  11. Anand, Ritu & van Wijnbergen, Sweder, 1989. "Inflation and the Financing of Government Expenditure: An Introductory Analysis with an Application to Turkey," World Bank Economic Review, World Bank Group, vol. 3(1), pages 17-38, January.
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Cited by:
  1. Budina, Nina & Van Wijnbergen, Sweder, 2000. "Fiscal deficits, monetary reform, and inflation stabilization in Romania," Policy Research Working Paper Series 2298, The World Bank.
  2. Dohse, Dirk & Krieger-Boden, Christiane & Soltwedel, RĂ¼diger, 1996. "Schleswig-Holstein: Standortpolitik in schwieriger Zeit," Kiel Discussion Papers 272, Kiel Institute for the World Economy (IfW).
  3. Uhlig, H.F.H.V.S., 1997. "Capital Income Taxation and the Sustainability of Permanent Primary Deficits," Discussion Paper 1997-11, Tilburg University, Center for Economic Research.
  4. Alan J. Auerbach & Jagadeesh Gokhale & Laurence J. Kotlikoff, 1994. "Generational Accounting: A Meaningful Way to Evaluate Fiscal Policy," Journal of Economic Perspectives, American Economic Association, vol. 8(1), pages 73-94, Winter.

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