IFin Seminar, Gao Can, University of St. Gallen "Debt and Deficits: Fiscal Analysis with Stationary Ratios"
Institute of Finance
Date: 3 April 2025 / 12:25 - 13:40
Speaker: IFin Seminar, Gao Can, University of St. Gallen
Title: Debt and Deficits: Fiscal Analysis with Stationary Ratios
Date: April 3, 2025
Ore: 12:25 - 13:40
Room: Red Room (Exec Center)
Lugano West Campus
Abstract
We introduce a new measure of a government's fiscal position that exploits cointegrating relationships among fiscal variables. The measure is a loglinear combination of tax revenue, government spending and the market value of government debt that—unlike the debt-GDP ratio—appears stationary in the US and 15 other developed countries. A weak fiscal position must ultimately be resolved by low future returns on government debt or by fiscal adjustment, a combination of high tax growth and low spending growth. Empirically, we find that debt returns play a negligible role and fiscal adjustment predominantly consists of changes in spending growth.