Showing papers by "Carl E. Walsh published in 1991"

Testing Intertemporal Budget Constraints: Theory and Applications to U. S. Federal Budget and Current Account Deficits

Abstract: This paper extends previous tests of intertemporal budget balance and present value relationships by expanding the set of allowable deficit processes and by deriving a testable condition that is sufficient to ensure intertemporal budget balance as long as the expected discount rate is strictly positive. Using these tests, the authors find that both the postwar federal budget deficit process and the process governing accumulation of U.S. assets by foreigners are consistent with intertemporal budget balance. Copyright 1991 by Ohio State University Press.

Neutrality results for government asset sales

Abstract: The purpose of this paper is to clarify some of the budgetary issues related to government asset sales. Section II considers the circumstances under which an asset sale will allow the government to reduce, in present value terms, the tax revenue it needs to finance a given path of current and future net‐of‐interest expenditures. Section III examines the policy actions that would need to accompany an asset sale in order to leave interest rates and asset prices unchanged. To answer this second question requires the specification of a general equilibrium framework. This approach highlights the changes in tax revenues that must accompany asset sales in order to neutralize their impact on asset prices. In both sections, the paper emphasizes the role of risk premia in determining the impact of government portfolio policies.