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A segmented trend model to assess fiscal sustainability: The US experience 1929–2009

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  • Tilak Abeysinghe

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  • Ananda Jayawickrama

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Abstract

The academic literature has focused largely on testing for long-run fiscal sustainability. In this exercise we formulate a flexible regression model that can be used to assess the sustainability of a more recent build-up of fiscal deficits and debt that would be of major concern to policy makers. The analysis of US data shows that, after adjusting for some fundamentals, the gross Federal debt–income ratio has been growing at an unsustainable rate of 4 % per year since 2007. The net debt–income ratio does not show such a significant trend. Since not all government assets are readily available to reduce debt, significant positive trends in the gross debt–income ratio calls for policy actions. Copyright Springer-Verlag 2013

Suggested Citation

  • Tilak Abeysinghe & Ananda Jayawickrama, 2013. "A segmented trend model to assess fiscal sustainability: The US experience 1929–2009," Empirical Economics, Springer, vol. 44(3), pages 1129-1141, June.
  • Handle: RePEc:spr:empeco:v:44:y:2013:i:3:p:1129-1141
    DOI: 10.1007/s00181-012-0584-2
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    References listed on IDEAS

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    Keywords

    Present-value borrowing constraint; Long-run and short-run fiscal sustainability; Rational expectations; Unadjusted and adjusted trends of debt ratios; C22; E62; H62; H63;

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • 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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