Channels, Spring 2018

Page 36 Schwartz • Public Principles and Economic Legacy burdensome. While Buchanan’s ideas may therefore be supported by this paper as independently recognized and evidenced, it is problematic that his foundational contributions to work such as this are not applied to a significant degree in the recent context. Another paper on the public debt is “The Behavior of U.S. Public Debt and Deficits,” by Henning Bohn. 122 While this article was written in 1998, it has been foundational to a number of the papers already mentioned. 123 Like the previous work on government responsiveness to interest rates, Bohn was primarily concerned with government responses in light of particular public finance dynamics. 124 As noted above, this is similar to Buchanan’s work. Nevertheless, like many of the recent articles that deal with public debt, Bohn accepts the framework that Robert Barro established depending on Ricardian Equivalence. 125 As a result of these different presuppositions, Bohn is led away from Buchanan’s concern with the difficulty of controlling a government that continually resorts to additional debt issue. Bohn writes, “Given the estimated positive response of primary surpluses to the debt-GDP ratio, the government budget identity implies that the debt-GDP ratio should be mean-reverting.” 126 Thus, “U. S. fiscal policy has historically been sustainable despite extended periods of primary deficits.” 127 Unfortunately, Bohn does not even feature a review of the theoretical assumptions that most later, similarly-patterned papers do. Now it must be noted that utilizing a sophisticated model such as Barro’s or Bohn’s because of its accuracy in reflecting and clarifying the relationships it measures is perfectly acceptable. If the overlapping generations assumption is accurate, then applying it is proper. But the accuracy of the assumption cannot be sufficiently established in a model where the assumption is taken as a given. Therefore, Buchanan was always focused on establishing the accuracy of the assumptions used by various schools. Bohn’s unwillingness to consider Barro’s model beyond its ability to correlate particular phenomena is improper in this light, and a departure from Buchanan’s work in public finance. 122 Henning Bohn, “The Behavior of U.S. Public Debt and Deficits,” The Quarterly Journal of Economics, August 1998, 949. 123 Xavier Debrun and Tidiane Kinda , “That Squeezing Feeling: The Interest Burden and Public Debt Stabilization,” International Finance 19:2, (2016) 148 and Debi Prasad Bal and Badri Narayan Rath, “Is Public Debt a Burden for India?”, Economic Society of Australia , ECONOMIC PAPERS, VOL. 35, NO. 2, JUNE 2016, 184. 124 Henning Bohn, “The Behavior of U.S. Public Debt and Deficits,” The Quarterly Journal of Economics, August 1998, 949. “How do governments react to the accumulation of debt? Do they take corrective measures when the debt-GDP ratio starts rising, or do they let the debt grow?” 125 Ibid, 950-951. “A univariate regression of primary surpluses on debt would fail to find a significant correlation between the two. But a more fully articulated equation for primary surpluses motivated by Barro's [1979] tax-smoothing model shows a significant conditional impact of debt on primary surpluses.” “Because of tbe potential omitted variables problems, the empirical analysis is based on an explicit theoretical model of fiscal policy, Barro's [1979] tax-smoothing model.” 126 Ibid, 950. 127 Ibid, 950. Bohn does note that “This has been controversial.”