Debt Control: An Alternative Route to a Balanced Budget

Abstract

This paper discusses an alternative route to a balanced budget, namely through debt control. Two models are compared: the debt brake which has been used in Switzerland since 2003 and the debt limitation model proposed by Compact for America. The paper concludes that the former, while apparently successful in Switzerland, is technically more sophisticated than necessary to control federal debt in the United States. As a debt control instrument, the Compact for America model is therefore preferable.

Keywords: fiscal policy, government debt, government deficit, balanced budget, structural deficit, economic growth, trend output

JEL Classification: E60, E61, E62, H50, H60, H61, H62, H63, H81