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Sustainability of Fiscal Policy and the Effects of Public Debt in the United States
Since the mid-2000s, the United States has amassed increasingly high levels of public debt. Motivated by the potential long-run economic effects of said debt, this paper reconciles the economic literature surrounding the effects of public debt on economic growth to identify a level at which public debt adversely effects economic growth. This paper explores two avenues for these adverse effects to occur: (i) a general slowing of economic growth and (ii) a sovereign debt crisis. Prior research indicates that public debt in excess of 90 to 100 percent of GDP will suppress economic growth through a non-linear response. These adverse effects ultimately culminate in a sovereign debt crisis, which is estimated to occur at different debt levels for different countries. Generally, this threshold is in the range of 150 to 250 percent of GDP, and the United States has an estimated threshold of 160 percent of GDP. Finally, this paper concludes that the U.S. is likely experiencing adverse, but minor, economic effects from its public debt and that it is unlikely to experience a debt crisis soon.