Debt and Deficits: Fiscal Analysis with Stationary Ratios
We introduce a measure of a government's fiscal position, a loglinear combination of taxes, spending, and the market value of the government debt, that appears stationary in long historical data from the US and the UK, and in postwar data from these and 13 other developed countries. The fiscal position forecasts persistent changes in tax and spending growth, which bring it back to its unconditional mean within a decade, but predicts only transitory variation in debt returns and GDP growth. Mean-reversion substantially reduces the impact of the fiscal position on future growth of the debt-GDP ratio.
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Copy CitationJohn Y. Campbell, Can Gao, and Ian W.R. Martin, "Debt and Deficits: Fiscal Analysis with Stationary Ratios," NBER Working Paper 31224 (2023), https://doi.org/10.3386/w31224.Download Citation
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