NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Finite Lifetimes and the Crowding Out Effects of Budget Deficits

James M. Poterba, Lawrence H. Summers

NBER Working Paper No. 1955
Issued in June 1986
NBER Program(s):   EFG   ME   PE

This note explores the sensitivity of the short-run savings effects of

government deficits to assumptions about household planning horizons. Using a

lifecycle simulation model, we show that even though deficit policies shift

sizable tax burdens to future generations, individuals live long enough to make

the assumption of an infinite horizon a good approximation for analyzing the

short-run savings effects. In practice, periods of debt accumulation such as

that in the United States during World War II are reversed sufficiently rapidly

to make their short-run effects on consumption and national savings relatively

small.

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Document Object Identifier (DOI): 10.3386/w1955

Published: Poterba, James M. and Lawrence H. Summers. "Finite Lifetimes and the Effectof Budget Deficits on National Saving," Journal of Monetary Economics, Vol . 20, September 1987, pp 369-392.

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