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HOW LARGE A FEDERAL BUDGET DEFICIT CAN WE SUSTAIN?
Author(s) -
JOINES DOUGLAS H.
Publication year - 1991
Publication title -
contemporary economic policy
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.454
H-Index - 49
eISSN - 1465-7287
pISSN - 1074-3529
DOI - 10.1111/j.1465-7287.1991.tb00336.x
Subject(s) - economics , deficit spending , government (linguistics) , debt , government debt , monetary economics , federal budget , interest rate , government budget , macroeconomics , public finance , finance , linguistics , philosophy , fiscal year
Governments may be unable to sustain large budget deficits indefinitely. Investors may impose limits on the amount of government debt—relative to gross national product (GNP)—they are willing to hold and thus limit the size of the deficit a government can sustain. The size of sustainable nominal deficits, then, would depend on the growth rate of nominal GNP. Reasonable assumptions regarding the GNP growth rate imply that the federal government can main tain its debt/GNP ratio at historically typical levels if it runs deficits of $175 billion in the near term and even larger amounts during future years.