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The Sustainability of Fiscal Policy in the United States

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  • Henning Bohn

Abstract

The paper examines the sustainability of U.S. fiscal policy, finding substantial evidence in favor. I summarize the U.S. fiscal record from 1792-2003, critically review sustainability conditions and their testable implications, and apply them to U.S. data. I particularly emphasize the ramifications of economic growth. A “growth dividend” has historically covered the entire interest bill on the U.S. debt. Unit root tests on real series, unscaled by GDP, are distorted by the series’ severe heteroskedasticity. The most credible evidence in favor of sustainability is the robust positive response of primary surpluses to fluctuations in the debt-GDP ratio.

Suggested Citation

  • Henning Bohn, 2005. "The Sustainability of Fiscal Policy in the United States," CESifo Working Paper Series 1446, CESifo.
    • Handle: RePEc:ces:ceswps:_1446
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    References listed on IDEAS

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    Keywords

    public debt; sustainability; primary surplus; unit root;
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