BibTeX
@MISC{Chen13debtin,
author = {Kaiji Chen and Jel Classi Cation E},
title = {Debt in the U.S. Economy},
year = {2013}
}
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Abstract
In 2011, the publicly held debt-to-GDP ratio in the United States reached 68 % and is expected to continue rising. Many proposals to curb the government de cit and the resulting debt are being discussed. In this paper, we use the standard neoclassical growth model to examine the future path of output, budget de cits, and debt in the U.S. economy under di¤erent tax policies. While this framework is relatively simple, it incorporates the general equilibrium e¤ects of tax policy, which are often missing from the Congressional Budget O ¢ ce projections. Our results show that debt-to-GNP ratios above 100 % are likely to continue into the future and that even small labor supply elasticities have a signi cant impact on these projections. We also nd that labor income tax rates higher than 40 % are needed for the de cit-to-GNP ratio to return to its historical level in the long run. Such high tax rates, however, result in about 10 % lower per capita GNP and large welfare costs at the steady state compared to the historical tax rates.
Keyphrases
u.s. economy historical level caput gnp standard neoclassical growth model general equilibrium ect signi cant impact many proposal high tax rate resulting debt di erent tax policy historical tax rate cit-to-gnp ratio long run congressional budget ce projection tax policy large welfare cost future path labor income tax rate steady state debt-to-gnp ratio debt-to-gdp ratio small labor supply elasticity united state
