The Fiscal Cliff: Is U.S. Fiscal Policy Sustainable?

8 Pages Posted: 2 Aug 2013

See all articles by Dat Thanh Nguyen

Dat Thanh Nguyen

La Trobe University

Sandy Suardi

University of Wollongong

Date Written: August 1, 2013

Abstract

The U.S. fiscal cliff has sparked renewed interest on the issue of fiscal sustainability. Using a time-varying parameter model with a longer data set (1916-2011), there is evidence that the response of primary surplus-income ratio to debt-GDP ratio shows (1) substantial variation over time, (2) the fiscal debt has become unsustainable since 2005 when primary surpluses have responded negatively to debt-income ratio, and (3) the lack of sustainability in fiscal policy continues through the subprime and global financial crises when huge liabilities were passed to the government from the financial sector.

Keywords: public debt, sustainability, primary surplus, time-varying parameter model

JEL Classification: H6, E6

Suggested Citation

Nguyen, Dat Thanh and Suardi, Sandy, The Fiscal Cliff: Is U.S. Fiscal Policy Sustainable? (August 1, 2013). Available at SSRN: https://ssrn.com/abstract=2305025 or http://dx.doi.org/10.2139/ssrn.2305025

Dat Thanh Nguyen

La Trobe University ( email )

Department of Economics and Finance
Victoria 3552, 3086
Australia

Sandy Suardi (Contact Author)

University of Wollongong ( email )

Northfields Avenue
Wollongong, New South Wales 2522
Australia

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