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A TEST OF STEADY‐STATE GOVERNMENT‐DEBT NEUTRALITY
Author(s) -
EVANS PAUL
Publication year - 1989
Publication title -
economic inquiry
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.823
H-Index - 72
eISSN - 1465-7295
pISSN - 0095-2583
DOI - 10.1111/j.1465-7295.1989.tb01162.x
Subject(s) - economics , neutrality , debt , government (linguistics) , steady state (chemistry) , monetary economics , government debt , government spending , debt to gdp ratio , debt ratio , macroeconomics , internal debt , welfare , market economy , political science , law , linguistics , philosophy , chemistry
This paper investigates whether in the steady state the real interest rate is an increasing function of both the government debt and government spending. Using data from the period between January 1981 and March 1986, the paper fin& no evidence of such a relationship. These data afford an especially powerful test because the ratio of federal debt to trend output, which had fallen from 93 to 33 percent between January 1948 and December 1980, reversed course after the enactment of the Economic Recovery Tax Act, reaching 47 percent in March 1986.