The Sutainability Of Budget Deficits In A Stochastic Economy
The transversality condition on government debt requires a zero limit of discounted future debt. The paper shows that, in a stochastic economy, the relevant discount rate depends on the probability distribution of future debt over states of nature. Discount rates on future government debt, spending, and taxes are generally not related to the rates of return on government debt. The correct choice of discount rates is important because debt discounted at the safe interest rate may well diverge to infinity under sustainable policies. This result raises questions about some recent empirical papers testing the sustainability of U.S. fiscal policy. Copyright 1995 by Ohio State University Press.
(This abstract was borrowed from another version of this item.)
To our knowledge, this item is not available for
download. To find whether it is available, there are three
1. Check below under "Related research" whether another version of this item is available online.
2. Check on the provider's web page whether it is in fact available.
3. Perform a search for a similarly titled item that would be available.
|Date of creation:||1990|
|Date of revision:|
|Contact details of provider:|| Postal: |
Web page: http://finance.wharton.upenn.edu/weiss/
More information through EDIRC
When requesting a correction, please mention this item's handle: RePEc:fth:pennif:6-90. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Thomas Krichel)
If references are entirely missing, you can add them using this form.