The U.S. Public Debt Valuation Puzzle

Zhengyang Jiang, Hanno Lustig, Stijn Van Nieuwerburgh and Mindy Z. Xiaolan

Econometrica, 2024, vol. 92, issue 4, 1309-1347

Abstract: The government budget constraint ties the market value of government debt to the expected present discounted value of fiscal surpluses. We find evidence that U.S. Treasury investors fail to impose this no‐arbitrage restriction in the United States. Both cyclical and long‐run dynamics of tax revenues and government spending make the surplus claim risky. In a realistic asset pricing model, this risk in surpluses creates a large gap between the market value of debt and its fundamental value, the PDV of surpluses, suggesting that U.S. Treasuries may be overpriced.

Date: 2024
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https://doi.org/10.3982/ECTA20497

Related works:
Working Paper: The U.S. Public Debt Valuation Puzzle (2021)
Working Paper: The U.S. Public Debt Valuation Puzzle (2019)
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