The Sustainability of Fiscal Policy in the United States
By Henning Bohn. Social Science Research Network, 2005
562 citations recorded by the source corpus.
The paper examines the sustainability of U.S. fiscal policy, finding substantial evidence in favor. I summarize the U.S. fiscal record from 1792-2003, critically review sustainability conditions and their testable implications, and apply them to U.S. data. I particularly emphasize the ramifications of economic growth. A “growth dividend” has historically covered the entire interest bill on the U.S. debt. Unit root tests on real series, unscaled by GDP, are distorted by the series’ severe heteroskedasticity. The most credible evidence in favor of sustainability is the robust positive response of primary surpluses to fluctuations in the debt-GDP ratio.
Subfields: Economics and Econometrics
View Paper: https://www.semanticscholar.org/paper/5a380aec94485206ab43cb4bd6e8caf7e30f20c8
How researchers see this paper
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In Economics and Econometrics
- Enrique G. Mendoza
- P. D’Erasmo
- Jing Zhang
- António Afonso
- Henning Bohn
- Anton Korinek
- Javier Bianchi
- Ricardo M. Sousa
Citations in the corpus
- What is a Sustainable Public Debt (2015, methodology): “A linear fiscal reaction function (FRF) with a statistically significant, positive (conditional) response of the primary balance to outstanding debt is sufficient for the IGBC to hold (Bohn (1998, 2008)).”
- Bond Supply and Excess Bond Returns (2014, unknown): “If we use total debt (Bohn 2008), which includes also non-marketable debt, then our results weaken somewhat.”
- The U.S. current account deficit and the expected share of world output (2006, unknown): “A Direct Test of Current Account Sustainability We begin by conducting standard empirical tests of intertemporal sustainability conditions for the U.S. current account along the lines Bohn (1998, 2004, 2005) has pursued for the U.S. government budget.”
- Are stationarity and cointegration restrictions really necessary for the intertemporal budget constraint (2007, background): “These variables may be defined in nominal terms, in real terms, or be deflated by suitable scale variables like GDP or population, provided the accumulation factor rt is measured appropriately.”
- Ricardian fiscal regimes in the European Union (2008, background): “Reference Data Methodology Results Bohn (1998) US, 1916-1995 VAR Positive reaction of primary surplus to (initial) debt ratio. Ricardian regime. Cochrane (1999), Woodford (1999) US, 1960-1996 VAR Positive changes in the budget surplus reduce the stock of public debt: Ricardian regime. Debrun and Wyp”