Data and Code for: A Goldilocks Theory of Fiscal Deficits

This paper proposes a tractable framework to analyze fiscal spaceand the dynamics of government debt, with a possibly binding zerolower bound (ZLB) constraint. Without the ZLB, a greater primary deficitunambiguously raises debt. However, debt need not explode: When R<G-phi,where phi is the sensitivity of R-G to debt, a modest permanentincrease in the deficit can be sustained forever---a ``free lunch''policy. With the ZLB, the relationship between deficit and debt canbecome non-monotone. Both high and low deficits can increase debt,as the latter weaken demand and reduce nominal growth at the ZLB.A rise in income inequality expands fiscal space outside the ZLB,but contracts it at the ZLB. Calibrating the model, we find littlespace for ``free lunch'' policies for the United States in 2019,but significant space for Japan.