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On the (Relative) Unimportance of a Balanced Budget

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Author Info
 Razzolini, Laura
Shughart, William F, II

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Abstract

This paper explores the reasoning underlying Milton Friedman's preference for a small, unbalanced budget over a large, balanced one. Because the marginal return from government spending is less than the marginal cost (measured in terms of the amount of income private individuals remain free to spend), government expenditures have more of an adverse impact on the economy in his view than does the method of financing that spending. Using a panel data set comprising the 50 states plus the District of Columbia, the authors report evidence from the years 1967 through 1992 that growth rates in income per capita tend to be higher in states with smaller public sectors. Moreover, they find that while both deficits and taxes reduce the rate of income growth in a state, the negative impact of government spending is considerably larger at the margin. Copyright 1997 by Kluwer Academic Publishers

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Publisher Info
Article provided by Springer in its journal Public Choice.

Volume (Year): 90 (1997)
Issue (Month): 1-4 (March)
Pages: 215-33
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Handle: RePEc:kap:pubcho:v:90:y:1997:i:1-4:p:215-33

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  1. Peter Calcagno & Monica Escaleras, 2006. "Party Alternation, Divided Government, and Fiscal Performance within U.S. States," Working Papers 06006, Department of Economics, College of Business, Florida Atlantic University, revised Dec 2006. [Downloadable!]
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  2. Dimitris K. Christopoulos & John Loizides & Efthymios G. Tsionas, 2005. "The Abrams curve of government size and unemployment: evidence from panel data," Applied Economics, Taylor and Francis Journals, vol. 37(10), pages 1193-1199, June. [Downloadable!] (restricted)
  3. John Loizides & George Vamvoukas, 2005. "Government expenditure and economic growth: Evidence from trivariate causality testing," Journal of Applied Economics, Universidad del CEMA, vol. 0, pages 125-152, May. [Downloadable!]
  4. Jo Anna Gray & Joe Stone, 2005. "Ricardian Equivalence for Sub-national States," University of Oregon Economics Department Working Papers 2006-2, University of Oregon Economics Department, revised 01 Dec 2005. [Downloadable!]
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