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  5. Did the US Really Grow Out of Its World War II Debt?

蝌蚪网 Journal:
Macroeconomics

ISSN 1945-7707 (Print) | ISSN 1945-7715 (Online)

Did the US Really Grow Out of Its World War II Debt?

  • Julien Acalin
  • Laurence Ball
蝌蚪网 Journal: Macroeconomics (Forthcoming)

Abstract

This paper examines the effects of primary budget surpluses, surprise inflation, and pegged interest rates before the Fed-Treasury Accord of 1951 on the U.S. public debt/GDP ratio. We find that with primary budget balance and without the distortions in real interest rates caused by surprise inflation and the pre-Accord peg, debt/GDP would have declined only from 106% in 1946 to 74% in 1974, not to 23% as in actual history. Our findings imply that, over the last 76 years, only a small amount of debt reduction has been achieved through growth rates that exceed undistorted interest rates.

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