TY  - JOUR
AU  - Ball,Laurence
AU  - Elmendorf,Douglas W.
AU  - Mankiw,N. Gregory
TI  - The Deficit Gamble
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 5015
PY  - 1995
Y2  - February 1995
UR  - http://www.nber.org/papers/w5015
L1  - http://www.nber.org/papers/w5015.pdf
N1  - Author contact info:
Laurence M. Ball
Department of Economics
Johns Hopkins University
Baltimore, MD 21218
Tel: 410/516-7605
Fax: 410/516-7600
E-Mail: lball@jhu.edu

Douglas Elmendorf
Director, Congressional Budget Office
Congressional Budget Office
Ford House Office Building, 4th Floor
Second and D Streets, SW
Washington, DC 20515
E-Mail: doug.elmendorf@cbo.gov

N. Gregory Mankiw
Department of Economics
Littauer 223
Harvard University
Cambridge, MA  02138
Tel: 617/495-4301
Fax: 617/495-7730
E-Mail: ngmankiw@fas.harvard.edu
AB  - The historical behavior of interest rates and growth rates in U.S. data suggests that the government can, with a high probability, run temporary budget deficits and then roll over the resulting government debt forever.  The purpose of this paper is to document this finding and to examine its implications.  Using a standard overlapping-generations model of capital accumulation, we show that whenever a perpetual rollover of debt succeeds, policy can make every generation better off.  This conclusion does not imply that deficits are good policy, for an attempt to roll over debt forever might fail. But the adverse effects of deficits, rather than being inevitable, occur with only a small probability.
ER  -