In ranking fiscal stimulus programs, it is useful to focus on the ratio of extra aggregate demand to extra national debt that results. This note argues that (because of repayment after the end of a recession) "national lines of credit"-that is, government-issued credit cards with countercyclical...

This paper proposes a tractable framework to analyze fiscal space and the dynamics of government debt, with a possibly binding zero lower bound (ZLB) constraint. Without the ZLB, a greater primary deficit unambiguously raises debt. However, debt need not explode: When R G - φ, where φ is the...

Recent developments in public finance in the analysis of dynamic government debt policies have emphasized effects on the distribution of real resources across generations. At the same time, macroeconomists have emphasized the importance of the length of the time horizon over which agents...

Many issues in macroeconomics, such as the level of the steady state interest rate, or the dynamic effects of government deficit finance, depend crucially on the horizon of economic agents. This paper develops a simple analytical model in which such issues can be examined and in which the...

The setup of the paper is as follows: Section I presents a fairly standard, small deterministic macromodel with a number of classical features. All markets clear instantaneously, there is no money illusion, and perfect foresight rules. The effects of monetary, financial, and fiscal policies in...

The prevailing view of the economic consequences of financing government deficits, as reflected in the recent economics literature and in recent public policy debates, reflects serious misunderstandings. Debt-financed deficits need not "crowd out" any private investment, and may even "crowd in"...

The textbook optimal policy response to an increase in government debt is simple--monetary policy should actively target inflation, and fiscal policy should smooth taxes while ensuring debt sustainability. Such policy prescriptions presuppose an ability to commit. Without that ability, the...

We analyze the conduct of fiscal policy in a financially integrated union in the presence of financial frictions. Frictions create a wedge between the return to investment and the union interest rate. This leads to an over-spending externality. While the social cost of spending is the return to...

The COVID pandemic found policymakers facing constraints on their ability to react to an exceptionally large negative shock. The current low interest rate environment limits the tools the central bank can use to stabilize the economy, while the large public debt curtails the efficacy of fiscal...