Debt and Deficits: Fiscal Analysis with Stationary Ratios

John Campbell, Can Gao and Ian Martin

No 31224, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We introduce a new measure of a government's fiscal position that exploits cointegrating relationships among fiscal variables. The measure is a loglinear combination of tax revenue, government spending and the market value of government debt that—unlike the debt-GDP ratio—appears stationary in the US and 15 other developed countries. A weak fiscal position must ultimately be resolved by low future returns on government debt or by fiscal adjustment, a combination of high tax growth and low spending growth. Empirically, we find that debt returns play a negligible role and fiscal adjustment predominantly consists of changes in spending growth.

JEL-codes: G12 H60 H62 (search for similar items in EconPapers)
Date: 2023-05
Note: AP EFG ME
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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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