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A Goldilocks Theory of Fiscal Deficits

Author

Listed:
  • Atif Mian
  • Ludwig Straub
  • Amir Sufi

Abstract

We develop a tractable framework for deficit and debt dynamics. A "free lunch" fiscal deficit—one that raises spending without higher future taxes—is sustainable without zero lower bound (ZLB) only when R

Suggested Citation

  • Atif Mian & Ludwig Straub & Amir Sufi, 2025. "A Goldilocks Theory of Fiscal Deficits," American Economic Review, American Economic Association, vol. 115(12), pages 4253-4291, December.
    • Handle: RePEc:aea:aecrev:v:115:y:2025:i:12:p:4253-91
    DOI: 10.1257/aer.20220308
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    More about this item

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt

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