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On the (Relative) Unimportance of a Balanced Budget

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  • Razzolini, Laura
  • Shughart, William F, II

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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Bibliographic 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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Web page: http://www.springerlink.com/link.asp?id=100332

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Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. State Spending Cuts Are Key Part of Brightening Our Fiscal Future
    by Anthony B. Kim in The Foundry on 2011-02-18 23:00:12
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Cited by:
  1. Efthyvoulou, Georgios, 2011. "Political cycles under external economic constraints: Evidence from Cyprus," Journal of Economics and Business, Elsevier, vol. 63(6), pages 638-662.
  2. 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.
  3. 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.
  4. Dimitris Christopoulos & Efthymios Tsionas, 2002. "Unemployment and government size: Is there any credible causality?," Applied Economics Letters, Taylor & Francis Journals, vol. 9(12), pages 797-800.
  5. Auteri, Monica & Costantini, Mauro, 2004. "Fiscal Policy and Economic Growth: The Case of the Italian Regions," The Review of Regional Studies, Southern Regional Science Association, vol. 34(1), pages 72-94.
  6. Dimitris Christopoulos & John Loizides & Efthymios Tsionas, 2005. "The Abrams curve of government size and unemployment: evidence from panel data," Applied Economics, Taylor & Francis Journals, vol. 37(10), pages 1193-1199.
  7. Magazzino, Cosimo, 2010. "Public expenditure and revenue in Italy, 1862-1993," MPRA Paper 27308, University Library of Munich, Germany.
  8. 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.
  9. repec:ebl:ecbull:v:5:y:2006:i:1:p:1-12 is not listed on IDEAS

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