The Sustainability of Government Deficits: Implications of the Present-Value Borrowing Constraint

David W. Wilcox

510 citations0/0 files storedJournal of money credit and banking

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Fiscal Policies and Political Economy Monetary Policy and Economic Impact Economic and Fiscal Studies

Abstract

This paper introduces a new methodology for evaluating the sustainability of fiscal policy. The new methodology is distinguished from most existing tests in two important respects: first, it allows for stochastic real interest rates; and second, it is both necessary and sufficient. Results from the application of the new test suggest that recent fiscal policy in the United States has not been sustainable. The paper contrasts its findings with those of James D. Hamilton and Marjorie A. Flavin (1986). Copyright 1989 by Ohio State University Press.

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References

1981Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root 1985On the Limitations of Government Borrowing: A Framework for Empirical Testing

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