Fiscal Policy and the Mehra-Prescott Puzzle: On the Welfare Implications of Budget Deficits When Real Interest Rates Are Low.: An article from: Journal of Money, Credit & Banking
Book Details
Author(s)Henning Bohn
PublisherOhio State University Press
ISBN / ASINB00098LN36
ISBN-13978B00098LN38
AvailabilityAvailable for download now
MarketplaceUnited States 🇺🇸
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This digital document is an article from Journal of Money, Credit & Banking, published by Ohio State University Press on February 1, 1999. The length of the article is 7367 words. The page length shown above is based on a typical 300-word page. The article is delivered in HTML format and is available in your Amazon.com Digital Locker immediately after purchase. You can view it with any web browser.
From the author: Historically, average real returns on U.S. government debt have been far below the rate of economic growth, allowing the U.S. government to roll over its debt at a remarkably low cost. At the same time, the rate of return on capital has generally been above the growth rate, suggesting that the U.S. economy is dynamically efficient. The paper shows that the welfare implications of budget deficits in this scenario depend critically on why interest rates have been so low. If the government can offer low returns on its debt because of some unique ability to create default-free claims, persistent primary budget deficits may be unproblematic. But if low interest rates are due to high risk aversion, policies that exploit the low cost of government debt to run frequent budget deficits will impose significant risks on future taxpayers. In essence, safe government debt is safe for the debt holders, but it is very risky for the taxpayers who are implicitly taking a short position in the safe security.
From the supplier: The fiscal policy implications of persistent budget deficits depends on the assumptions made about welfare implications. The welfare implications of one model that argues that risk aversion is the cause of low-interest rates are different than the welfare implications that market imperfections results in the low-interest rates. Persistent primary deficits may or may not be unproblematic, depending on which model is true.
Citation Details
Title: Fiscal Policy and the Mehra-Prescott Puzzle: On the Welfare Implications of Budget Deficits When Real Interest Rates Are Low.
Author: Henning Bohn
Publication:Journal of Money, Credit & Banking (Refereed)
Date: February 1, 1999
Publisher: Ohio State University Press
Volume: 31 Issue: 1 Page: 1(1)
Distributed by Thomson Gale
From the author: Historically, average real returns on U.S. government debt have been far below the rate of economic growth, allowing the U.S. government to roll over its debt at a remarkably low cost. At the same time, the rate of return on capital has generally been above the growth rate, suggesting that the U.S. economy is dynamically efficient. The paper shows that the welfare implications of budget deficits in this scenario depend critically on why interest rates have been so low. If the government can offer low returns on its debt because of some unique ability to create default-free claims, persistent primary budget deficits may be unproblematic. But if low interest rates are due to high risk aversion, policies that exploit the low cost of government debt to run frequent budget deficits will impose significant risks on future taxpayers. In essence, safe government debt is safe for the debt holders, but it is very risky for the taxpayers who are implicitly taking a short position in the safe security.
From the supplier: The fiscal policy implications of persistent budget deficits depends on the assumptions made about welfare implications. The welfare implications of one model that argues that risk aversion is the cause of low-interest rates are different than the welfare implications that market imperfections results in the low-interest rates. Persistent primary deficits may or may not be unproblematic, depending on which model is true.
Citation Details
Title: Fiscal Policy and the Mehra-Prescott Puzzle: On the Welfare Implications of Budget Deficits When Real Interest Rates Are Low.
Author: Henning Bohn
Publication:Journal of Money, Credit & Banking (Refereed)
Date: February 1, 1999
Publisher: Ohio State University Press
Volume: 31 Issue: 1 Page: 1(1)
Distributed by Thomson Gale
