BIGFI/Finance Seminar with Ian Martin, London School of Economics and Political Science

The Department of Finance is proud to announce the upcoming seminar with Ian Martin, London School of Economics and Political Science.

Ian Martin will present: Debt and Deficits: Fiscal Analysis with Stationary Ratios

ABSTRACT: We study cointegrating relationships among fiscal variables and output and use them to introduce a new measure of the fiscal position. In the US, we find that the primary surplus-GDP ratio and the government debt-GDP ratio are nonstationary, which invalidates standard analytical approaches that assume them to be stationary. The tax revenue-debt ratio and the government expenditure-debt ratio are also nonstationary but their difference, the primary surplus-debt ratio, is stationary, as is the tax revenue-GDP ratio. We develop a new framework for fiscal analysis that takes account of these facts. Empirically, we find that the primary surplus-debt ratio reverts to its mean extremely slowly. Predictable returns on debt contribute negligibly to this mean-reversion, which is driven in the short run by tax revenue and in the long run by government expenditure.

Location:
Solbjerg Plads 3
2000 Frederiksberg
Room: SPs07