Discussion Paper

The Debt Ceiling as a “Fiscal Rule”

Abstract: A few months ago, the federal government was once again confronted with the need to raise the statutory limit on the amount of debt issued by the Treasury. As in the past, the protracted stalemate and associated uncertainty led to calls to eliminate the debt ceiling. In this post, I make the counterargument. Likely because of its straightforwardness, the debt ceiling has been an effective “fiscal rule.” The reduction of the federal deficit from the mid-1980s to the mid-1990s was due in large part to a series of budget compromises, all of which were accompanied by the need to raise the debt ceiling.

Keywords: fiscal consolidation; debt ceiling;

JEL Classification: H0;

Bibliographic Information

Provider: Federal Reserve Bank of New York

Part of Series: Liberty Street Economics

Publication Date: 2011-11-09

Number: 20111109