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Managing the U.S. Government Deficit in the 1980s

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  • Benjamin M. Friedman
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    Abstract

    In the absence of major policy changes, federal government budget deficits will probably constitute a serious impediment to any increase inthe U.S. economy's net investment rate, and may even depress the investment rate still further, during the latter 1980s. The U.S. Government's outstanding debt is now rising sharply in relation to gross national product,and, under either current legislation or the budget policies proposed by the Reagan Administration, it will continue to do so. This sustained upward movement of the government debt ratio will be unprecedented in U.S. peacetime experience. Because government debt and private-sector debt have historically moved inversely in relation to gross national production the United States, a rising government debt ratio over time implies a sustained contraction of private debt relative to the economy's size. This reduction in the private sector's relative debt position in turn implies a constriction of its ability to finance investment in net new capital formation.

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    File URL: http://www.nber.org/papers/w1209.pdf
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    Bibliographic Info

    Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 1209.

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    Date of creation: Oct 1983
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    Publication status: published as Wachter, Michael L. and Susan M. Wachter (eds.) Removing Obstacles to Economic Growth. Philadelphia: University of Pennsylvania Press, 1984.
    Handle: RePEc:nbr:nberwo:1209

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    1. Boskin, Michael J, 1978. "Taxation, Saving, and the Rate of Interest," Journal of Political Economy, University of Chicago Press, vol. 86(2), pages S3-27, April.
    2. Roley, V Vance, 1982. "The Effect of Federal Debt-Management Policy on Corporate Bond and Equity Yields," The Quarterly Journal of Economics, MIT Press, vol. 97(4), pages 645-68, November.
    3. Benjamin M. Friedman, 1978. "Crowding Out or Crowding In? Economic Consequences of Financing Government Deficits," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 9(3), pages 593-641.
    4. Benjamin M. Friedman, 1982. "Debt and Economic Activity in the United States," NBER Chapters, in: The Changing Roles of Debt and Equity in Financing U.S. Capital Formation, pages 91-110 National Bureau of Economic Research, Inc.
    5. Laurence J. Kotlikoff & Daniel E. Smith, 1983. "Pensions in the American Economy," NBER Books, National Bureau of Economic Research, Inc, number kotl83-1, octubre-d.
    6. Baily, Martin Neil, 1981. "The Productivity Growth Slowdown and Capital Accumulation," American Economic Review, American Economic Association, vol. 71(2), pages 326-31, May.
    7. Benjamin M. Friedman, 1982. "Debt and Economic Activity in the United States," NBER Working Papers 0704, National Bureau of Economic Research, Inc.
    8. Michael J. Boskin, 1978. "Taxation, Saving, and the Rate of Interest," NBER Chapters, in: Research in Taxation, pages 3-27 National Bureau of Economic Research, Inc.
    9. E. Philip Howrey & Saul H. Hymans, 1978. "The Measurement and Determination of Loanable-Funds Saving," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 9(3), pages 655-685.
    10. John B. Shoven & Jeremy I. Bulow, 1975. "Inflation Accounting and Nonfinancial Corporate Profits: Physical Assets," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 6(3), pages 557-612.
    11. Penner, Rudolph G & Silber, William L, 1973. "The Interaction Between Federal Credit Programs and the Impact on the Allocation of Credit," American Economic Review, American Economic Association, vol. 63(5), pages 838-52, December.
    12. Blinder, Alan S. & Solow, Robert M., 1973. "Does fiscal policy matter?," Journal of Public Economics, Elsevier, vol. 2(4), pages 319-337.
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