We express the aggregate budget constraint of the economy as nesting the budget constraints of the private, public, and external sectors (e.g., equities, Treasuries, and foreign assets). This formulation implies that valuation ratios in one sector may capture fluctuations in future real returns and cash-flow growth in other sectors. Exploiting the cross-sector restrictions implied by the aggregate constraint, we show that fluctuations in the government surplus-to-debt ratio robustly predict equity returns. The magnitude of this cross-sector predictability is on par with the own-sector predictability associated with the dividend–price ratio. We then develop a model in which distortionary taxes generate these time-series dynamics and use the cross-sector forecasts to calibrate the implied magnitude of the tax distortions.v