The effects of trust fund surpluses on the rest of the federal budget Academic Article uri icon

abstract

  • © 2016 Board of Trustees of the University of Illinois We constructed two theoretical models both of which predict that the federal fund surplus decreases, by an amount less than dollar-for-dollar, in response to an increase in the trust fund surplus. While this prediction is consistent with the empirical estimates based on the cross-sectional country-level data, it is at odds with the estimates based on the U.S. time series data. The paper then extends the existing time series analyses by considering a length-of-lag dimension in differencing the variables. By choosing alternative lengths of lag in differencing or not differencing at all, we not only are able to reproduce the range of existing time series estimates, but also generate estimates that are in line with the theoretical prediction and are consistent with those obtained from the cross-sectional country-level data. Our preferred model specification yields that only about one-third of the surplus generated in trust funds gets saved by the government.

author list (cited authors)

  • Liu, L., Rettenmaier, A. J., Saving, T. R., & Wang, Z.

citation count

  • 1

publication date

  • May 2017