Admissible Surplus Dynamics and the Government Debt Puzzle

Collin‐Dufresne, Pierre; Hugonnier, Julien; Perazzi, Elena

doi:10.2139/ssrn.4477518

SSRN Journal

2023

DOI: 10.2139/ssrn.4477518

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Admissible Surplus Dynamics and the Government Debt Puzzle

Pierre Collin‐Dufresne

Julien Hugonnier

Elena Perazzi

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2024

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The U.S. Public Debt Valuation Puzzle

Jiang,

Lustig,

Van Nieuwerburgh

et al. 2024

ECTA

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The government budget constraint ties the market value of government debt to the expected present discounted value of fiscal surpluses. We find evidence that U.S. Treasury investors fail to impose this no‐arbitrage restriction in the United States. Both cyclical and long‐run dynamics of tax revenues and government spending make the surplus claim risky. In a realistic asset pricing model, this risk in surpluses creates a large gap between the market value of debt and its fundamental value, the PDV of surpluses, suggesting that U.S. Treasuries may be overpriced.

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The U.S. Public Debt Valuation Puzzle

Jiang,

Lustig,

Van Nieuwerburgh

et al. 2024

ECTA

View full text Add to dashboard Cite

show abstract

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Admissible Surplus Dynamics and the Government Debt Puzzle

Cited by 1 publication

References 0 publications

The U.S. Public Debt Valuation Puzzle

The U.S. Public Debt Valuation Puzzle

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