Sustainability of US public debt: Estimating smoothing spline regressions

In this paper we analyze how the primary surplus to GDP ratio in the US reacts to variations in the public debt-GDP ratio. In contrast to earlier studies we perform non-parametric and semi-parametric estimations. Our results show that the response of the primary surplus to GDP ratio is a positive nonlinear function of the public debt-GDP ratio. Further, our estimations demonstrate that the coefficient giving the response of the primary surplus-GDP ratio to a change in the public debt-GDP ratio declines over time when we assume a linear model with time dependent coefficients.