Favero, Carlo; Giavazzi, Francesco - Federal Reserve Bank of Boston - 2007
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 …