Putting US Fiscal Policy on a Sustainable Path

Karen Dynan and Douglas Elmendorf

No 33751, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Even allowing for substantial uncertainty regarding projections, current US fiscal policies are almost certainly unsustainable. Therefore, policymakers must decide when and in what ways to change policies. Changing policies sooner rather than later would put debt on a lower trajectory and thereby increase national savings and provide insurance against adverse developments by expanding fiscal space, protecting against a persistent shortfall in economic growth, and reducing the chance of a fiscal crisis. Yet, the probability of a near-term fiscal crisis is difficult to assess: Yields on Treasury debt are within their range of the past few decades, which suggests that investors are not that worried about the fiscal outlook—but debt and deficits are at nearly unprecedented levels, and experience shows that investors’ confidence in a government’s fiscal management can deteriorate quickly.

JEL-codes: E62 H60 H62 H63 H68 (search for similar items in EconPapers)
Date: 2025-05
Note: EFG PE
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