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Budget deficits and U.S. economic growth

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Author Info

  • Atrayee Ghosh Roy

    ()
    (Minnesota State University, Mankato)

  • Hendrik Van den Berg

    ()
    (University of Nebraska-Lincoln)

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    Abstract

    This paper explores how the U.S. budget deficit affects U.S. economic growth. Time-series data for the 1973-2004 period is applied to a simultaneous equation model to estimate the various direct and indirect effects of budget deficits on growth. The results indicate that, ceteris paribus, an increase in budget deficits slows growth. However, the “twin” current account deficits, which our model shows tend to accompany budget deficits, increase growth. Hence, the overall relationship between budget deficits and economic growth is ambiguous.

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    File URL: http://www.accessecon.com/Pubs/EB/2009/Volume29/EB-09-V29-I4-P290.pdf
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    Bibliographic Info

    Article provided by AccessEcon in its journal Economics Bulletin.

    Volume (Year): 29 (2009)
    Issue (Month): 4 ()
    Pages: 3015-3030

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    Handle: RePEc:ebl:ecbull:eb-08h60001

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    Related research

    Keywords: economic growth; budget deficits; stationary; simultaneity;

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    1. Laurence Ball & N. Gregory Mankiw, 1996. "What Do Budget Deficits Do?," NBER Working Papers 5263, National Bureau of Economic Research, Inc.
    2. Jaume Ventura & Aart Kraay, 2005. "The dot-com bubble, the Bush deficits and the US current account," Economics Working Papers 847, Department of Economics and Business, Universitat Pompeu Fabra, revised Dec 2005.
    3. Stanley Fischer, 1993. "The Role of Macroeconomic Factors in Growth," NBER Working Papers 4565, National Bureau of Economic Research, Inc.
    4. Edwards, Sebastian, 1998. "Openness, Productivity and Growth: What Do We Really Know?," Economic Journal, Royal Economic Society, vol. 108(447), pages 383-98, March.
    5. Henning Bohn, . "The Sustainability of Budget Deficits with Lump-Sum and with Income-Based Taxation," Rodney L. White Center for Financial Research Working Papers 17-90, Wharton School Rodney L. White Center for Financial Research.
    6. Laurence Ball & Douglas W. Elmendorf & N. Gregory Mankiw, 1995. "The Deficit Gamble," Harvard Institute of Economic Research Working Papers 1710, Harvard - Institute of Economic Research.
    7. Mendoza, Enrique G., 1997. "Terms-of-trade uncertainty and economic growth," Journal of Development Economics, Elsevier, vol. 54(2), pages 323-356, December.
    8. Bleaney, Michael & Greenaway, David, 2001. "The impact of terms of trade and real exchange rate volatility on investment and growth in sub-Saharan Africa," Journal of Development Economics, Elsevier, vol. 65(2), pages 491-500, August.
    9. Menzie D. Chinn & Hiro Ito, 2005. "Current Account Balances, Financial Development and Institutions: Assaying the World "Savings Glut"," NBER Working Papers 11761, National Bureau of Economic Research, Inc.
    10. Christopher Blattman & Jason Hwang & Jeffrey G. Williamson, 2003. "The Terms of Trade and Economic Growth in the Periphery 1870-1938," NBER Working Papers 9940, National Bureau of Economic Research, Inc.
    11. Esfahani, Hadi Salehi, 1991. "Exports, imports, and economic growth in semi-industrialized countries," Journal of Development Economics, Elsevier, vol. 35(1), pages 93-116, January.
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