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The Perceived Government Budget Constraint

Author

Listed:
  • Takuji Fueki

    (Hitotsubashi University)

  • Masashi Hino

    (The University of Tokyo)

  • Mitsuru Katagiri

    (Waseda University)

  • Munechika Katayama

    (Waseda University)

  • Taisuke Nakata

    (The University of Tokyo)

Abstract

We conduct a survey with an information-provision experiment to examine whether households’ macroeconomic expectations are consistent with the intertemporal government budget constraint (GBC). Using respondents’ forecasts of the debt-to-GDP ratio, inflation, interest rates, the primary balance, and real GDP growth, we compute the discrepancy between the left- and right-hand sides of the intertemporal GBC—which we refer to as the GBC wedge. We find that the GBC wedge is dispersed and, on average, non-zero. We also find that households revise their macroeconomic expectations in response to information provision in a way that is inconsistent with the intertemporal GBC.

Suggested Citation

  • Takuji Fueki & Masashi Hino & Mitsuru Katagiri & Munechika Katayama & Taisuke Nakata, 2026. "The Perceived Government Budget Constraint," CARF F-Series CARF-F-625, Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo.
    • Handle: RePEc:cfi:fseres:cf625
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    References listed on IDEAS

    as
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    4. Philippe Andrade & Erwan Gautier & Eric Mengus & Emanuel Münch & Tobias Schmidt, 2025. "Household Beliefs about Fiscal Dominance," Working papers 986, Banque de France.
    5. Alberto Cavallo & Guillermo Cruces & Ricardo Perez-Truglia, 2017. "Inflation Expectations, Learning, and Supermarket Prices: Evidence from Survey Experiments," American Economic Journal: Macroeconomics, American Economic Association, vol. 9(3), pages 1-35, July.
    Full references (including those not matched with items on IDEAS)

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