What Are the Consequences of High Us Deficits and Debt?
Paper Session
Tuesday, Jan. 5, 2027 10:15 AM - 12:15 PM (EST)
- Chair: Kimberly Clausing, University of California-Los Angeles
A Unified Fiscal Rule for the United States
Abstract
This paper proposes a unified deficit management rule for the United States. Existing fiscal feedback rules prescribe deficit reduction when projected debt rises, but abstract from stabilization policy. We extend the framework to incorporate the state of the economy: policymakers should allow larger deficits in recessions and require stronger consolidation in booms to offset that borrowing. The rule therefore yields a state-contingent deficit target that is consistent with both macroeconomic stabilization and long-run fiscal sustainability. Applied to U.S. budget projections, the framework provides a practical guide to the deficit policymakers should run in any economic environment.The Big Three Entitlement Programs in the US: Prospects for Reform
Abstract
Social Security, Medicare, and Medicaid provide benefits to tens of millions of Americans and together account for nearly half of federal spending in the U.S. As a share of GDP, the programs have grown substantially in recent decades, from 6 percent in 1985 to nearly 12 percent in 2025. Absent changes in policy, the combined spending of the three programs as a share of GDP will rise substantially over the next two decades, creating challenges for both the federal budget and for individual state budgets (in the case of Medicaid). Additionally, recent projections indicate that the Social Security and Medicare (Part A) trust funds will become insolvent by 2033. This paper briefly summarizes the key drivers of growth in Social Security, Medicare, and Medicaid spending (as a share of GDP) during the past 40 years. We discuss how this growth has been driven by a combination of factors including the aging population, rising health care costs, and expansions in eligibility criteria. We then contrast the potential options for policymakers to meaningfully address the fiscal challenges of each program while considering the associated distributional effects.Understanding the Sources of Declining Convenience Yield on U.S. Debt
Abstract
The convenience yield on U.S. government debt has declined gradually over recent decades. One explanation is that the special features making U.S. debt desirable to investors have deteriorated; an alternative is the emergence of competing sovereign providers of safe assets. We estimate the contribution of each channel by combining a model of safe asset provision in the world economy with data on debt quantities and a time-varying measure of a convenience-free safe yield.Discussant(s)
Jay Shambaugh
,
George Washington University
Wesley Yin
,
University of California-Los Angeles
Melissa Kearney
,
University of Notre Dame
Ritt Keerati
,
Federal Reserve Board
JEL Classifications
- H6 - National Budget, Deficit, and Debt