Interest Rates, Expected Future Deficits and Tax Proposals

Colleen F Johnson

Economic Inquiry, 1991, vol. 29, issue 1, 190-93

Abstract: Several recent publications have presented evidence suggesting a negative wealth effect in response to federal deficits. This paper investigates the hypothesis that rational economic agents use the legislative process to forecast the future path of federal deficits and then act on that information. A tax legislation variable, included in a reduced form interest rate equation, is tested for significance. The legislative variable that mirrors the effects of current and past deficits is often significant. Copyright 1991 by Oxford University Press.

Date: 1991
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