The Behavior of U. S. Public Debt and Deficits
Henning Bohn ()
The Quarterly Journal of Economics, 1998, vol. 113, issue 3, 949-963
How do governments react to the accumulation of debt? Do they take corrective measures, or do they let the debt grow? Whereas standard time series tests cannot reject a unit root in the U. S. debt-GDP ratio, this paper provides evidence of corrective action: the U. S. primary surplus is an increasing function of the debt-GDP ratio. The debt-GDP ratio displays mean-reversion if one controls for war-time spending and for cyclical fluctuations. The positive response of the primary surplus to changes in debt also shows that U. S. fiscal policy is satisfying an intertemporal budget constraint.
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Persistent link: https://EconPapers.repec.org/RePEc:oup:qjecon:v:113:y:1998:i:3:p:949-963.
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