Perceived Budget Constraint of the Government

Gabriele Maugeri and Dmitriy Sergeyev

No 21843, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: We provide direct evidence on how the public expects the government to satisfy its intertemporal budget constraint. In a representative survey of U.S. households, respondents expect only 45% of government debt to be financed by future primary surpluses and 23% to be rolled over indefinitely without ever generating surpluses, as if sustained by a bubble. Experts perceive an even larger bubble (37%). Beliefs respond to fundamentals: at a debt-to-GDP ratio of 150%, the perceived bubble shrinks to 15%. A New Keynesian model calibrated to these beliefs implies a 13% larger government spending multiplier.

Keywords: Government debt; Survey expectations; Debt financing (search for similar items in EconPapers)
JEL-codes: C83 D84 E62 E63 H63 (search for similar items in EconPapers)
Date: 2026-08
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