What Has Financed Government Debt?

Standard equilibrium models imply that the real value of debt in the hands of the public must be equal to the expected present-value of surpluses. We impose this equilibrium condition on an identified VAR and characterize the way in which the present-value support of debt varies across various types of fiscal policy shocks and between fiscal and non-fiscal shocks. Horizons over which debt innova- tions are financed range from a little over 10 years in the case of tax shocks, to five or six decades for spending and transfers shocks.