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Accounting for changes in the U.S. budget deficit

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Listed:
  • Troy Davig
  • Michael Redmond

Abstract

After rising substantially during the Great Recession, the U.S. federal budget deficit has narrowed the past few years. While policy reforms and cyclical economic recovery have certainly contributed to this improvement, an array of temporary factors such as Federal Reserve remittances, dividends from Fannie Mae and Freddie Mac, and the unwinding of one-time stimulus packages may have had a notable effect. To understand the driving factors behind the improvement in the deficit, Davig and Redmond introduce a framework to gauge the contributions of temporary factors, automatic stabilizers, and longer-term structural policies. The authors find that over half of the improvement in the deficit is due to temporary factors, with automatic stabilizers also playing a significant role.

Suggested Citation

  • Troy Davig & Michael Redmond, 2014. "Accounting for changes in the U.S. budget deficit," Economic Review, Federal Reserve Bank of Kansas City, issue Q IV, pages 5-28.
    • Handle: RePEc:fip:fedker:00021
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    Keywords

    U.S. federal budget deficit; Deficit;

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