2026/07/24 by Jesse Bricker, William Peterman, Rebecca Wasyk
Economics, Econometrics and Finance · #Fiscal Policies and Political Economy #Sustainable Finance and Green Bonds #Global Financial Regulation and Crises
paper · doi:10.1086/742262
The debt-to-GDP ratio is projected to continue to rise due to the primary deficit. This paper models the data generation process for the primary balance by incorporating a rich structure of serial correlation in the innovations to this process by its source (legislative, economic, and technical). We apply this model to debt accumulation, demonstrating that a richer structure for serial correlation leads to wider distributions of debt outcomes with significantly more debt accumulation. Onetime legislative consolidation is less effective at stabilizing the debt ratio than a series of smaller but correlated legislative innovations that are consistent with those in the pre-2000 period.