We estimate a New Keynesian model on post-war US data with generalised method of moments using either constant or time- varying debt and labor income taxes. We show that accounting for government debt and distortionary taxes help the New Keynesian model match the level of the nominal term premium with a lower relative risk-aversion than typically found in the literature.
Jel codes: E13, E31, E43, E44, E62.
Keywords: Zero-coupon bond, nominal term premium, balanced budget rule, government debt, income taxation.