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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. Shapiro, Carl & Stiglitz, Joseph E, 1984. "Equilibrium Unemployment as a Worker Discipline Device," American Economic Review, American Economic Association, vol. 74(3), pages 433-44, June.
    2. Stiglitz, Joseph E & Weiss, Andrew, 1981. "Credit Rationing in Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 71(3), pages 393-410, June.
    3. Bernanke, Ben S, 1983. "Nonmonetary Effects of the Financial Crisis in Propagation of the Great Depression," American Economic Review, American Economic Association, vol. 73(3), pages 257-76, June.
    4. Martin Feldstein & Philippe Bacchetta, 1991. "National Saving and International Investment," NBER Chapters, in: National Saving and Economic Performance, pages 201-226 National Bureau of Economic Research, Inc.
    5. Andrei Shleifer & Lawrence H. Summers, 1988. "Breach of Trust in Hostile Takeovers," NBER Chapters, in: Corporate Takeovers: Causes and Consequences, pages 33-68 National Bureau of Economic Research, Inc.
    6. 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.
    7. Andrea Terzi, 2004. "The independence of finance from saving: A flow-of-funds interpretation," Macroeconomics 0405017, EconWPA.
    8. Allen Sinai, 1992. "Financial and Real Business Cycles," Eastern Economic Journal, Eastern Economic Association, vol. 18(1), pages 1-54, Winter.
    9. Singh, A., 1992. "Regulation of Mergers in the US and the UK: A new Agenda," Cambridge Working Papers in Economics 9207, Faculty of Economics, University of Cambridge.
    10. Scherer, F M, 1988. "Corporate Takeovers: The Efficiency Arguments," Journal of Economic Perspectives, American Economic Association, vol. 2(1), pages 69-82, Winter.
    11. Jensen, Michael C, 1988. "Takeovers: Their Causes and Consequences," Journal of Economic Perspectives, American Economic Association, vol. 2(1), pages 21-48, Winter.
    12. repec:fth:harver:1489 is not listed on IDEAS
    13. Mark Gertler, 1988. "Financial structure and aggregate economic activity: an overview," Proceedings, Federal Reserve Bank of Cleveland, pages 559-596.
    14. James R. Crotty, 1992. "Neoclassical and Keynesian Approaches to the Theory of Investment," Journal of Post Keynesian Economics, M.E. Sharpe, Inc., vol. 14(4), pages 483-496, July.
    15. Blejer, Mario I & Cheasty, Adrienne, 1991. "The Measurement of Fiscal Deficits: Analytical and Methodological Issues," Journal of Economic Literature, American Economic Association, vol. 29(4), pages 1644-78, December.
    16. Hayne E. Leland., 1989. "LBOs and Taxes: No One to Blame But Ourselves?," Research Program in Finance Working Papers RPF-185, University of California at Berkeley.
    17. Myron S. Scholes & Mark A. Wolfson, 1991. "The Role of Tax Rules in the Recent Restructuring of U.S. Corporations," NBER Chapters, in: Tax Policy and the Economy, Volume 5, pages 1-24 National Bureau of Economic Research, Inc.
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