Debt and Deficits: Fiscal Analysis with Stationary Ratios

John Campbell, Can Gao and Ian Martin
Additional contact information
Can Gao: University of St. Gallen; Swiss Finance Institute

No 23-101, Swiss Finance Institute Research Paper Series from Swiss Finance Institute

Abstract: We introduce a new measure of a government’s fiscal position that exploits cointegrating relationships among fiscal variables and output. The measure is a loglinear combination of tax revenue, government spending and the market value of government debt that—unlike the debt-GDP ratio—is stationary in the US and the UK since World War II. Fiscal deterioration forecasts a long-run decline in spending rather than increased tax revenue or low returns for bondholders. Fiscal adjustment to tax and spending shocks occurs through mean-reversion in tax and spending growth, with a negligible contribution from debt returns.

Keywords: Debt; deficits; primary surplus; stationarity; cointegration (search for similar items in EconPapers)
JEL-codes: G12 H62 H63 (search for similar items in EconPapers)
Pages: 69 pages
Date: 2023-11
New Economics Papers: this item is included in nep-ets and nep-his
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Citations: View citations in EconPapers (2)

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Related works:
Working Paper: Debt and Deficits: Fiscal Analysis with Stationary Ratios (2023)
Working Paper: Debt and Deficits: Fiscal Analysis with Stationary Ratios (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:chf:rpseri:rp23101

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