Topic
Intertemporal budget constraint
About: Intertemporal budget constraint is a research topic. Over the lifetime, 378 publications have been published within this topic receiving 13479 citations.
Papers published on a yearly basis
Papers
More filters
TL;DR: This article showed that the U.S. primary surplus is an increasing function of the debt-GDP ratio and that U. S. fiscal policy is satisfying an intertemporal budget constraint.
Abstract: How do governments react to the accumulation of debt? Do they take corrective measures, or do they let the debt grow? Whereas standard time series tests cannot reject a unit root in the U. S. debt-GDP ratio, this paper provides evidence of corrective action: the U. S. primary surplus is an increasing function of the debt-GDP ratio. The debt-GDP ratio displays mean-reversion if one controls for war-time spending and for cyclical fluctuations. The positive response of the primary surplus to changes in debt also shows that U. S. fiscal policy is satisfying an intertemporal budget constraint.
1,410 citations
TL;DR: In this article, the authors find that recent spending and taxing policies of the government violate the government's intertemporal budget constraint and that either government spending must be reduced or tax revenues must be increased.
Abstract: Yes. Specifically, we find that recent spending and taxing policies of the government–if continued–violate the government's intertemporal budget constraint. As a result, government spending must be reduced and/or tax revenues must be increased. These conclusions are based on tests of whether government spending and revenue are cointegrated. In addition to examining real spending and revenue, we also normalize these variables by real GNP and population. For a growing economy, these normalized measures are perhaps more pertinent. We also test and find support for the hypothesis that deficits have become a problem only in recent years.
751 citations
TL;DR: In this paper, the authors extend 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 inter-term budget balance as long as the expected discount rate is strictly positive.
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.
722 citations
Posted Content•
TL;DR: In this paper, the authors distinguish empirically between two views on the limitations of government borrowing: one view is that nothing precludes the government from running a permanent budget deficit, paying interest due on the growing debt load simply by issuing new debt, and the other view holds that creditors would be unwilling to purchase government debt unless the government made a credible commitment to balance its budget in present value terms.
Abstract: This paper seeks to distinguish empirically between two views on the limitations of government borrowing. According to one view, nothing precludes the government from running a permanent budget deficit, paying interest due on the growing debt load simply by issuing new debt, An alternative perspective holds that creditors would be unwilling to purchase government debt unless the government made a credible commitment to balance its budget in present value terms. We show that distinguishing between these possibilities is mathematically equivalent to testing whether a continuing currency inflation might be fueled by speculation alone or is instead driven solely by economic fundamentals. Empirical tests which have been developed for this economic question lead us to conclude that postwar U.S. deficits are largely consistent with the proposition that the government budget must be balanced in present-value terms.
660 citations
TL;DR: In this article, a new methodology for evaluating the sustainability of fiscal policy is introduced, which allows for stochastic real interest rates and is both necessary and sufficient to evaluate the sustainability.
Abstract: This paper introduces a new methodology for evaluating the sustainability of fiscal policy. The new methodology is distinguished from most existing tests in two important respects: first, it allows for stochastic real interest rates; and second, it is both necessary and sufficient. Results from the application of the new test suggest that recent fiscal policy in the United States has not been sustainable. The paper contrasts its findings with those of James D. Hamilton and Marjorie A. Flavin (1986). Copyright 1989 by Ohio State University Press.
530 citations