On the Determination of the Public Debt

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On the Determination of the Public Debt

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Title: On the Determination of the Public Debt
Author: Barro, Robert J.
Citation: Barro, Robert J. 1979. On the determination of the public debt. Journal of Political Economy 87(5): 940-971.
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Abstract: A public debt theory is constructed in which the Ricardian invariance theorem is valid as a first-order proposition but where the dependence of excess burden on the timing of taxation implies an optimal time path of debt issue. A central proposition is that deficits are varied in order to maintain expect ed constancy in tax rates. This behavior implies a positive effect on debt issue of temporary increases in government spending (as in wartime) a countercyclical response of debt to temporary income movements, and a one-to-one effect of expected inflation on nominal debt growth. Debt issue would be invariant with the outstanding debt-income ratio and, except for a minor effect, with the level of government spending. Hypotheses are tested on U.S. data since World WXar1. Results are basically in accord Fith the theory. It also turns out that a small set of explanatory variables can account for the principal movements in interest-bearing federal debt since the 1920s.
Published Version: doi:10.1086/260807
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Citable link to this page: http://nrs.harvard.edu/urn-3:HUL.InstRepos:3451400
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