IDEAS home Printed from https://ideas.repec.org/a/psl/pslqrr/201913.html
   My bibliography  Save this article

An empirical analysis for the US of the impact of federal budget deficits and the average effective personal income tax rate on the ex post real interest rate yield on ten-year Treasuries

Author

Listed:
  • Richard J. Cebula

    (Jacksonville University)

  • Robert Boylan

    (Jacksonville University)

Abstract

We investigate the impact of federal government budget deficits and federal personal income tax rates on the ex post real interest rate yield on ten-year US Treasury notes. Using autoregressive two-stage least squares estimations for the post-Bretton Woods era, we find that the yield on these Treasury issues has been an increasing function of the federal budget deficit as a percent of GDP, both in the form of the total/unified deficit and the primary deficit, and also an increasing function of the average effective federal personal income tax rate. The estimation reveals that growth in the M2 money supply (relative to GDP) acts to reduce the real interest rate yield on ten-year Treasuries. Consequently, while a growing money supply can help to keep real interest rates on Treasury notes (and hence federal debt service costs) down, policymakers should be sensitive to the fact that both budget deficit increases and tax rate increases can elevate the real interest rate.

Suggested Citation

  • Richard J. Cebula & Robert Boylan, 2019. "An empirical analysis for the US of the impact of federal budget deficits and the average effective personal income tax rate on the ex post real interest rate yield on ten-year Treasuries," PSL Quarterly Review, Economia civile, vol. 72(288), pages 41-52.
    • Handle: RePEc:psl:pslqrr:2019:13
    as

    Download full text from publisher

    File URL: https://ojs.uniroma1.it/index.php/PSLQuarterlyReview/article/view/14262/pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. de Haan, Jakob & Sturm, Jan-Egbert, 2000. "On the relationship between economic freedom and economic growth," European Journal of Political Economy, Elsevier, vol. 16(2), pages 215-241, June.
    2. Thomas Laubach, 2009. "New Evidence on the Interest Rate Effects of Budget Deficits and Debt," Journal of the European Economic Association, MIT Press, vol. 7(4), pages 858-885, June.
    3. Richard J. Cebula & Joshua Hall & Franklin G. Mixon Jr & James E. Payne (ed.), 2015. "Economic Behavior, Economic Freedom, and Entrepreneurship," Books, Edward Elgar Publishing, number 16557, March.
    4. Marc C. Chopin, 1998. "Does the Maturity Mix of Government Borrowing Impact Municipal Bond Rates?," Studies in Economics and Finance, Emerald Group Publishing Limited, vol. 19(1/2), pages 3-26, January.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Liu Kerry, 2023. "The Effects of Foreign Participation on Chinese Government Bond Yields," Folia Oeconomica Stetinensia, Sciendo, vol. 23(2), pages 222-240, December.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Olalekan Charles Okunlola & Anthony E. Akinlo, 2021. "Does economic freedom enhance quality of life in Africa?," International Review of Economics, Springer;Happiness Economics and Interpersonal Relations (HEIRS), vol. 68(3), pages 357-387, September.
    2. Petar Stankov, 2017. "Economic Freedom and Welfare Before and After the Crisis," Springer Books, Springer, number 978-3-319-62497-6, January.
    3. Douglas Sutherland & Peter Hoeller & Balázs Égert & Oliver Röhn, 2010. "Counter-cyclical Economic Policy," OECD Economics Department Working Papers 760, OECD Publishing.
    4. Jorg Bibow, 2004. "Fiscal Consolidation: Contrasting Strategies & Lessons From International Experiences," Economics Working Paper Archive wp_400, Levy Economics Institute.
    5. Afonso, António, 2007. "An avenue for expansionary fiscal contractions," MPRA Paper 4593, University Library of Munich, Germany.
    6. Brigitte Granville & Jaume Martorell Cruz & Martha Prevezer, 2015. "Elites, Thickets and Institutions: French Resistance versus German Adaptation to Economic Change, 1945-2015," Working Papers 63, Queen Mary, University of London, School of Business and Management, Centre for Globalisation Research.
    7. Maximiliano Marzetti & Rok Spruk, 2023. "Long-Term Economic Effects of Populist Legal Reforms: Evidence from Argentina," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 65(1), pages 60-95, March.
    8. Boockmann, Bernhard & Dreher, Axel, 2003. "The contribution of the IMF and the World Bank to economic freedom," European Journal of Political Economy, Elsevier, vol. 19(3), pages 633-649, September.
    9. repec:jpe:journl:2054 is not listed on IDEAS
    10. Wei Wang & Kehui Wei & Oleksandr Kubatko & Vladyslav Piven & Yulija Chortok & Oleksandr Derykolenko, 2023. "Economic Growth and Sustainable Transition: Investigating Classical and Novel Factors in Developed Countries," Sustainability, MDPI, vol. 15(16), pages 1-15, August.
    11. Paul J.J. Welfens, 2011. "The Twin Crisis: From the Transatlantic Banking Crisis to the Euro Crisis?," EIIW Discussion paper disbei187, Universitätsbibliothek Wuppertal, University Library.
    12. Sorin Gabriel Anton & Ionel Bostan, 2017. "The Role of Access to Finance in Explaining Cross-National Variation in Entrepreneurial Activity: A Panel Data Approach," Sustainability, MDPI, vol. 9(11), pages 1-16, October.
    13. Röhrs, Sigrid & Winter, Christoph, 2017. "Reducing government debt in the presence of inequality," Journal of Economic Dynamics and Control, Elsevier, vol. 82(C), pages 1-20.
    14. Marcus Box & Karl Gratzer & Xiang Lin, 2020. "Destructive entrepreneurship in the small business sector: bankruptcy fraud in Sweden, 1830–2010," Small Business Economics, Springer, vol. 54(2), pages 437-457, February.
    15. L. Marattin & P. Paesani & S. Salotti, 2011. "Fiscal shocks, public debt, and long-term interest rate dynamics," Working Papers wp740, Dipartimento Scienze Economiche, Universita' di Bologna.
    16. Pettersson, Jan, 2003. "Democracy, Consolidation and Growth," Research Papers in Economics 2002:16, Stockholm University, Department of Economics, revised 15 Dec 2004.
    17. Ardagna Silvia & Caselli Francesco & Lane Timothy, 2007. "Fiscal Discipline and the Cost of Public Debt Service: Some Estimates for OECD Countries," The B.E. Journal of Macroeconomics, De Gruyter, vol. 7(1), pages 1-35, August.
    18. Pitlik, Hans & Wirth, Steffen, 2003. "Do crises promote the extent of economic liberalization?: an empirical test," European Journal of Political Economy, Elsevier, vol. 19(3), pages 565-581, September.
    19. Challe, Edouard & Le Grand, François & Ragot, Xavier, 2013. "Incomplete markets, liquidation risk, and the term structure of interest rates," Journal of Economic Theory, Elsevier, vol. 148(6), pages 2483-2519.
    20. Kai Daniel Schmid & Michael Schmidt, 2012. "EMU and the Renaissance of Sovereign Credit Risk Perception," IAW Discussion Papers 87, Institut für Angewandte Wirtschaftsforschung (IAW).
    21. José Aixalá & Gema Fabro, 2009. "Economic freedom, civil liberties, political rights and growth: a causality analysis," Spanish Economic Review, Springer;Spanish Economic Association, vol. 11(3), pages 165-178, September.

    More about this item

    Keywords

    ;
    ;
    ;
    ;
    ;
    ;

    JEL classification:

    • 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

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:psl:pslqrr:2019:13. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Carlo D'Ippoliti (email available below). General contact details of provider: http://www.economiacivile.it .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.