Finite Lifetimes and the Crowding Out Effects of Budget Deficits
James M. Poterba
Lawrence H. Summers
This note explores the sensitivity of the short-run savings effects of
government deficits to assumptions about household planning horizons. Using a
lifecycle simulation model, we show that even though deficit policies shift
sizable tax burdens to future generations, individuals live long enough to make
the assumption of an infinite horizon a good approximation for analyzing the
short-run savings effects. In practice, periods of debt accumulation such as
that in the United States during World War II are reversed sufficiently rapidly
to make their short-run effects on consumption and national savings relatively
In order to set up a list of libraries that you have access to,
you must first login
or sign up.
Then set up a personal list of libraries from your profile page by
clicking on your user name at the top right of any screen.