DP437 National Insolvency: A Test of the US Intertemporal Budget Constraint

Author(s): Merih Uctum, Michael R. Wickens
Publication Date: August 1990
Keyword(s): Balance of Payments, Budget Constraint, Government Spending
JEL(s): H61, H62, H63
Programme Areas: International Macroeconomics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=437

If a nation fails to satisfy its intertemporal budget constraint (IBC) then, like a government or a household, either it will become insolvent or it can consume more of its income. The main purpose of this paper is to establish necessary and sufficient conditions for a nation to satisfy its IBC, and to use these to carry out a test of whether the United States is violating its IBC. After suitable modifications the techniques used in the literature in testing the government IBC can be used; for example, the balance of payments replaces the government budget constraint. The analysis provides a number of new results and generalizations of existing results.