Zhengyang Jiang, Hanno Lustig, Stijn Van Nieuwerburgh, M. Xiaolan
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引用次数: 1
Abstract
ABSTRACT:We use discounted cash flow analysis to measure the projected fiscal capacity of the US federal government. We apply our valuation method to the Congressional Budget Office (CBO) projections for the US federal government's primary deficits between 2022 and 2052 and projected debt outstanding in 2052. The discount rate for projected cash flows and future debt must include a GDP or market risk premium in recognition of the risk associated with future surpluses. Despite current low interest rates, we find that US fiscal capacity is more limited than commonly thought. Because of the back-loading of projected primary surpluses, the duration of the surplus claim far exceeds the duration of the outstanding Treasury portfolio. This duration mismatch exposes the government to the risk of rising interest rates, which would trigger the need for higher tax revenue or lower spending. Reducing this risk by front-loading primary surpluses requires a major fiscal adjustment.
期刊介绍：
The Brookings Papers on Economic Activity (BPEA) is a semi-annual academic conference and journal that pairs rigorous research with real-time policy analysis to address the most urgent economic challenges of the day. Working drafts of the papers are presented and discussed at conferences typically held twice each year, and the final versions of the papers and comments along with summaries of the general discussions are published in the journal several months later. The views expressed by the authors, discussants and conference participants in BPEA are strictly those of the authors, discussants and conference participants, and not of the Brookings Institution. As an independent think tank, the Brookings Institution does not take institutional positions on any issue.
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