Fiscal policy in the US: Sustainable after all?

Pierre Aldama and Jerome Creel

Post-Print from HAL

Abstract: The sustainability of US public debt has been widely discussed since the Great Recession. Using annual data since 1940, we estimate and compare different specifications of fiscal rules. Estimates of constant-parameter fiscal rules show no evidence of sustainability. This may be due to the instability of government's behaviour over time. Thus, we estimate a Markov-switching fiscal rule in order to identify periods of unsustainable and sustainable fiscal policies. First, we show that the government stabilizes public debt only periodically. Second, during these periods, the government's reaction is sufficiently tight to stabilize public debt over the entire horizon. We conclude that a relatively short-lived but tight fiscal contraction can be sufficient to ensure long-run US debt sustainability.

Keywords: Fiscal rules; Fiscal regimes; Fiscal sustainability; Public debt; Markov-switching; Model-based sustainability (search for similar items in EconPapers)
Date: 2019-09
Note: View the original document on HAL open archive server: https://hal.science/hal-03384685
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

Published in Economic Modelling, 2019, 81, pp.471 - 479. ⟨10.1016/j.econmod.2018.03.017⟩

Downloads: (external link)
https://hal.science/hal-03384685/document (application/pdf)

Related works:
Journal Article: Fiscal policy in the US: Sustainable after all? (2019)
Working Paper: Fiscal policy in the US: Sustainable after all? (2019)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-03384685

DOI: 10.1016/j.econmod.2018.03.017

Access Statistics for this paper

More papers in Post-Print from HAL
Bibliographic data for series maintained by CCSD ().