The U.S. Public Debt Valuation Puzzle
The government budget constraint ties the market value of government debt to the expected risk-adjusted present discounted value of fiscal surpluses. We find evidence that U.S. Treasury investors fail to impose this no-arbitrage restriction in the U.S. Both cyclical and long-run dynamics of tax revenues and government spending make the surplus claim risky. In a realistic asset pricing model, this risk in surpluses creates a large gap between the market value of debt and its fundamental value, the PDV of surpluses, suggesting that U.S. Treasurys may be mispriced.
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Copy CitationZhengyang Jiang, Hanno Lustig, Stijn Van Nieuwerburgh, and Mindy Z. Xiaolan, "The U.S. Public Debt Valuation Puzzle," NBER Working Paper 26583 (2019), https://doi.org/10.3386/w26583.Download Citation
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Published Versions
Zhengyang Jiang & Hanno Lustig & Stijn Van Nieuwerburgh & Mindy Z. Xiaolan, 2024. "The U.S. Public Debt Valuation Puzzle," Econometrica, Econometric Society, vol. 92(4), pages 1309-1347, July. citation courtesy of 
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