The Sustainability of Government Deficits: Implications of the Present-Value Borrowing Constraint.

The article examines the relation between the value of borrowing constraint to the sustainability of government deficits. The recent structure of fiscal policy in the U.S. does not appear to have been sustainable. The author details a test introduced to distinguish sustainable policies from unsustainable ones. The article allows for stochastic real interest rates that are both necessary and sufficient for sustainability. The article reveals the lack of sustainability of recent policy since the discounted value of the debt increased in each of the last three years of the sample.