ABSTRACT
In this chapter we address the contentious issue of the relationship between interest rates and budget deficits. Given that there are by now a number of studies summarizing this topic (see, for example, Bernheim (1987), Blanchard and Fischer (1989), among others), we do not provide a detailed treatment of the alternate paradigms proposed to examine this relationship. Instead, we briefly discuss the predictions of each of the paradigms and then propose a model which can be used to test the alternate predictions.
