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Corporate Restructuring and the Budget Deficit Debate

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  • Martin H. Wolfson

    (University of Notre Dame)

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    Abstract

    This paper examines the assumptions underlying the view that large federal budget deficits crowd out private investment and create a twin trade deficit. These assumptions are contrasted with those of an alternative theory which emphasizes the importance of the institutional structures of the financial system in the context of the credit market. In particular, the paper argues that corporations were not crowded out of credit markets; indeed, they borrowed heavily to finance corporate restructuring (mergers, takeovers, leveraged buyouts, equity repurchases, etc.). This restructuring was encouraged by tax considerations, and the resulting loss of revenue contributed to the budget deficit.

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    File URL: http://college.holycross.edu/RePEc/eej/Archive/Volume19/V19N4P495_520.pdf
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    Bibliographic Info

    Article provided by Eastern Economic Association in its journal Eastern Economic Journal.

    Volume (Year): 19 (1993)
    Issue (Month): 4 (Fall)
    Pages: 495-520

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    Handle: RePEc:eej:eeconj:v:19:y:1993:i:4:p:495-520

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    Postal: c/o Dr. Alexandre Olbrecht, The Anisfield School of Business 205, Ramapo College, 505 Ramapo Valley Road, Ramapo, New Jersey 07430, USA
    Phone: (201) 684-7346
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    Web page: http://www.ramapo.edu/eea/journal.html
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    Keywords: Deficit;

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    1. Andrea Terzi, 1987. "The Independence of Finance from Saving: A Flow-of-Funds Interpretation," Journal of Post Keynesian Economics, M.E. Sharpe, Inc., M.E. Sharpe, Inc., vol. 9(2), pages 188-197, January.
    2. Shapiro, Carl & Stiglitz, Joseph E, 1984. "Equilibrium Unemployment as a Worker Discipline Device," American Economic Review, American Economic Association, American Economic Association, vol. 74(3), pages 433-44, June.
    3. Singh, A., 1992. "Regulation of Mergers in the US and the UK: A new Agenda," Cambridge Working Papers in Economics, Faculty of Economics, University of Cambridge 9207, Faculty of Economics, University of Cambridge.
    4. James R. Crotty, 1992. "Neoclassical and Keynesian Approaches to the Theory of Investment," Journal of Post Keynesian Economics, M.E. Sharpe, Inc., M.E. Sharpe, Inc., vol. 14(4), pages 483-496, July.
    5. Allen Sinai, 1992. "Financial and Real Business Cycles," Eastern Economic Journal, Eastern Economic Association, Eastern Economic Association, vol. 18(1), pages 1-54, Winter.
    6. Ben S. Bernanke, 1983. "Non-Monetary Effects of the Financial Crisis in the Propagation of the Great Depression," NBER Working Papers 1054, National Bureau of Economic Research, Inc.
    7. Gertler, Mark, 1988. "Financial Structure and Aggregate Economic Activity: An Overview," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 20(3), pages 559-88, August.
    8. Albert M. Wojnilower, 1980. "The Central Role of Credit Crunches in Recent Financial History," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 11(2), pages 277-340.
    9. Martin Feldstein & Philippe Bacchetta, 1989. "National Saving and International Investment," NBER Working Papers 3164, National Bureau of Economic Research, Inc.
    10. Myron S. Scholes & Mark A. Wolfson, 1991. "The Role of Tax Rules in the Recent Restructuring of U.S. Corporations," NBER Chapters, National Bureau of Economic Research, Inc, in: Tax Policy and the Economy, Volume 5, pages 1-24 National Bureau of Economic Research, Inc.
    11. Jensen, Michael C, 1988. "Takeovers: Their Causes and Consequences," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 2(1), pages 21-48, Winter.
    12. Scherer, F M, 1988. "Corporate Takeovers: The Efficiency Arguments," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 2(1), pages 69-82, Winter.
    13. Andrei Shleifer & Lawrence H. Summers, 1987. "Breach of Trust in Hostile Takeovers," NBER Working Papers 2342, National Bureau of Economic Research, Inc.
    14. Blejer, Mario I & Cheasty, Adrienne, 1991. "The Measurement of Fiscal Deficits: Analytical and Methodological Issues," Journal of Economic Literature, American Economic Association, American Economic Association, vol. 29(4), pages 1644-78, December.
    15. Stiglitz, Joseph E & Weiss, Andrew, 1981. "Credit Rationing in Markets with Imperfect Information," American Economic Review, American Economic Association, American Economic Association, vol. 71(3), pages 393-410, June.
    16. repec:fth:harver:1489 is not listed on IDEAS
    17. Hayne E. Leland., 1989. "LBOs and Taxes: No One to Blame But Ourselves?," Research Program in Finance Working Papers, University of California at Berkeley RPF-185, University of California at Berkeley.
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