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How Large A Federal Budget Deficit Can We Sustain?

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  • DOUGLAS H. JOINES

Abstract

Governments may be unable to sustain large budget deficits indefinitely. Investors may impose limits on the amount of government debt—relative to gross national product (GNP)—they are willing to hold and thus limit the size of the deficit a government can sustain. The size of sustainable nominal deficits, then, would depend on the growth rate of nominal GNP. Reasonable assumptions regarding the GNP growth rate imply that the federal government can main tain its debt/GNP ratio at historically typical levels if it runs deficits of $175 billion in the near term and even larger amounts during future years.

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  • Douglas H. Joines, 1991. "How Large A Federal Budget Deficit Can We Sustain?," Contemporary Economic Policy, Western Economic Association International, vol. 9(3), pages 1-11, July.
    • Handle: RePEc:bla:coecpo:v:9:y:1991:i:3:p:1-11
    DOI: 10.1111/j.1465-7287.1991.tb00336.x
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    1. António Afonso & João Jalles, 2014. "A longer-run perspective on fiscal sustainability," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 41(4), pages 821-847, November.
    2. António Afonso, 2005. "Fiscal Sustainability: The Unpleasant European Case," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 61(1), pages 19-44, March.
    3. António Afonso, 2000. "Fiscal policy sustainability: some unpleasant European evidence," Working Papers Department of Economics 2000/12, ISEG - Lisbon School of Economics and Management, Department of Economics, Universidade de Lisboa.
    4. Cuddington, John T., 1997. "Analyzing the sustainability of fiscal deficitsin developing countries," Policy Research Working Paper Series 1784, The World Bank.
    5. Percival Pineda, 2017. "Financial liberalization and private sector borrowing in ASEAN 4 economies 1990–2012," Eurasian Economic Review, Springer;Eurasia Business and Economics Society, vol. 7(2), pages 277-295, August.
    6. Pierre-Yves Hénin, 1997. "Soutenabilité des déficits et ajustements budgétaires," Revue Économique, Programme National Persée, vol. 48(3), pages 371-395.
    7. Doğan, İbrahim & Bilgili, Faik, 2014. "The non-linear impact of high and growing government external debt on economic growth: A Markov Regime-switching approach," Economic Modelling, Elsevier, vol. 39(C), pages 213-220.
    8. David J. Smyth & Yu Hsing, 1995. "In Search Of An Optimal Debt Ratio For Economic Growth," Contemporary Economic Policy, Western Economic Association International, vol. 13(4), pages 51-59, October.

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