Working Paper: NBER ID: w1955
Authors: James M. Poterba; Lawrence H. Summers
Abstract: This note explores the sensitivity of the short-run savings effects of \ngovernment deficits to assumptions about household planning horizons. Using a \nlifecycle simulation model, we show that even though deficit policies shift \nsizable tax burdens to future generations, individuals live long enough to make \nthe assumption of an infinite horizon a good approximation for analyzing the \nshort-run savings effects. In practice, periods of debt accumulation such as \nthat in the United States during World War II are reversed sufficiently rapidly \nto make their short-run effects on consumption and national savings relatively \nsmall.
Keywords: No keywords provided
JEL Codes: No JEL codes provided
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| government deficits (H62) | national savings (D14) |
| government debt (H63) | national savings (D14) |
| deficits (H62) | consumption spending (E20) |
| deficits (H62) | tax burdens to future generations (H60) |
| deficits (H62) | total spending (H56) |
| deficit policies (H62) | household consumption (D10) |
| finite vs infinite horizon models (D15) | short-run savings effects of budget deficits (E62) |