A fiscal shock due to a shift in taxes or in government spending will, at some point in time, constrain the future path … of taxes and spending, since the government’s intertemporal budget constraint will eventually have to be met. This simple … possibility that taxes, spending, and interest rates might respond to the level of the debt as it evolves over time. We show that …

an increase in income taxes. These policies have zero impact on fiscal revenues. In certain cases equivalence requires in …