Debt and Deficits: Fiscal Analysis with Stationary Ratios / John Y. Campbell, Can Gao, Ian W.R. Martin.

Format:

Book

Author/Creator:

Campbell, John Y.

Contributor:

National Bureau of Economic Research.

Gao, Can.

Martin, Ian W.R.

Series:

Working Paper Series (National Bureau of Economic Research) no. w31224.

NBER working paper series no. w31224

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2023.

Summary:

We introduce a new measure of a government's fiscal position that exploits cointegrating relationships among fiscal variables and output. The measure is a loglinear combination of tax revenue, government spending and the market value of government debt that--unlike the debt-GDP ratio--is stationary in the US and the UK since World War II. Fiscal deterioration forecasts a long-run decline in spending rather than increased tax revenue or low returns for bondholders. Fiscal adjustment to tax and spending shocks occurs through mean-reversion in tax and spending growth, with a negligible contribution from debt returns.

Notes:

Print version record

May 2023.