Will Economic Growth Be Short-Lived as Fiscal Challenges Abound?

Romina Boccia and Dominik Lett

The United States has been experiencing remarkable economic growth, even as debt and deficits soar to unprecedented heights. The economy has benefitted from lower interest rate sensitivity in the market and fiscal and monetary tailwinds. These dual trends are largely temporary, hiding the fiscal drag beneath the surface.

The economic literature is clear that high and rising government debt‐​to‐​GDP slows growth. Over time, debt crowds out more productive investments...