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The substainability of government deficits: implications of the present- value borrowing constraint

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  • David W. Wilcox

Abstract

This paper introduces a new methodology for evaluating the sustainability of fiscal policy. The new methodology is distinguished from most existing tests in two important respects: first, it allows for stochastic real interest rates; and second, it is both necessary and sufficient. Results from the application of the new test suggest that recent fiscal policy in the United States has not been sustainable. The paper contrasts its findings with those of James D. Hamilton and Marjorie A. Flavin (1986). Copyright 1989 by Ohio State University Press.
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  • David W. Wilcox, 1987. "The substainability of government deficits: implications of the present- value borrowing constraint," Working Paper Series / Economic Activity Section 77, Board of Governors of the Federal Reserve System (U.S.).
  • Handle: RePEc:fip:fedgwe:77
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