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A Test of Steady-State Government-Debt Neutrality

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  • Evans, Paul

Abstract

This paper investigates whether, in the steady state, the real interest rate is an increasing function of both government debt and government spending. Using data from the period between January 1981 and March 1986, the paper finds no evidence of such a relationship. These data afford an especially powerful test because the ratio of federal debt to trend output, which had fallen from 93 to 33 percent between January 1948 and December 1980, reversed course after the enactment of the Economic Recovery Tax Act, reaching 47 percent in March 1986. Copyright 1989 by Oxford University Press.

Suggested Citation

  • Evans, Paul, 1989. "A Test of Steady-State Government-Debt Neutrality," Economic Inquiry, Western Economic Association International, vol. 27(1), pages 39-55, January.
    • Handle: RePEc:oup:ecinqu:v:27:y:1989:i:1:p:39-55
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    Cited by:

    1. Otto Gandenberger, 2000. "Is the Fiscal Deficit Misconceived? Proponents of Generational Accounting Overstate their Case," CESifo Working Paper Series 282, CESifo.
    2. Berument, Hakan, 1998. "Central Bank Independence and Financing Government Spending," Journal of Macroeconomics, Elsevier, vol. 20(1), pages 133-151, January.
    3. Krishanu Pradhan, 2016. "Ricardian Approach to Fiscal Sustainability in India," Margin: The Journal of Applied Economic Research, National Council of Applied Economic Research, vol. 10(4), pages 499-529, November.
    4. Robert Haveman, 1994. "Should Generational Accounts Replace Public Budgets and Deficits?," Journal of Economic Perspectives, American Economic Association, vol. 8(1), pages 95-111, Winter.

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