Empirical Economics

, Volume 44, Issue 3, pp 1129–1141

A segmented trend model to assess fiscal sustainability: The US experience 1929–2009

Article

DOI: 10.1007/s00181-012-0584-2

Cite this article as:
Abeysinghe, T. & Jayawickrama, A. Empir Econ (2013) 44: 1129. doi:10.1007/s00181-012-0584-2

Abstract

The academic literature has focused largely on testing for long-run fiscal sustainability. In this exercise we formulate a flexible regression model that can be used to assess the sustainability of a more recent build-up of fiscal deficits and debt that would be of major concern to policy makers. The analysis of US data shows that, after adjusting for some fundamentals, the gross Federal debt–income ratio has been growing at an unsustainable rate of 4 % per year since 2007. The net debt–income ratio does not show such a significant trend. Since not all government assets are readily available to reduce debt, significant positive trends in the gross debt–income ratio calls for policy actions.

Keywords

Present-value borrowing constraint Long-run and short-run fiscal sustainability Rational expectations Unadjusted and adjusted trends of debt ratios 

JEL Classification

C22 E62 H62 H63 

Copyright information

© Springer-Verlag 2012

Authors and Affiliations

  1. 1.Department of EconomicsNational University of SingaporeSingaporeSingapore
  2. 2.Department of Economics and StatisticsUniversity of PeradeniyaPeradeniyaSri Lanka

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