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What Do Budget Deficits Do?

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Author Info
Laurence Ball
N. Gregory Mankiw

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Abstract

This paper discusses the effects of budget deficits on the economy in four steps. First, it reviews standard theory about how budget deficits influence saving, investment, the trade balance, interest rates, exchange rates, and long-term growth. Second, it offers a rough estimate of the magnitude of some of the effects. Third, it discusses how budget deficits affect economic welfare. Finally, it considers the possibility that continuing budget deficits in a country could lead to a 'hard landing' in which the demand for the country's assets suddenly collapses.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 5263.

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Date of creation: Apr 1996
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Handle: RePEc:nbr:nberwo:5263

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Martin Feldstein & Charles Horioka, 1980. "Domestic Savings and International Capital Flows," NBER Working Papers 0310, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  2. B. Douglas Bernheim, 1988. "Ricardian Equivalence: An Evaluation of Theory and Evidence," NBER Working Papers 2330, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  3. Laurence Ball & Douglas W. Elmendorf & N. Gregory Mankiw, 1995. "The Deficit Gamble," Harvard Institute of Economic Research Working Papers 1710, Harvard - Institute of Economic Research.
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  4. Gramlich, Edward M, 1989. "Budget Deficits and National Saving: Are Politicians Exogenous?," Journal of Economic Perspectives, American Economic Association, vol. 3(2), pages 23-35, Spring. [Downloadable!] (restricted)
  5. Martin Feldstein, 1992. "The Budget and Trade Deficits Aren't Really Twins," NBER Working Papers 3966, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  6. De Long, J Bradford & Summers, Lawrence H, 1991. "Equipment Investment and Economic Growth," The Quarterly Journal of Economics, MIT Press, vol. 106(2), pages 445-502, May. [Downloadable!] (restricted)
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  1. Ramon Moreno, 1995. "Budget deficit cuts and the dollar," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue Dec 15. [Downloadable!]
  2. Yaprak Gulcan & Mustafa Erhan Bilman, 2005. "The Effects of Budget Deficit Reduction on Exchange Rate: Evidence from Turkey," Discussion Paper Series 05/07, Dokuz Eylül University, Faculty of Business, Department of Economics, revised 12 Dec 2005. [Downloadable!]
  3. Paolo Paesani & Rolf Strauch & Manfred Kremer, 2006. "Public debt and long-term interest rates - the case of Germany, Italy and the USA," Working Paper Series 656, European Central Bank. [Downloadable!]
  4. Lindblad, Hans & Sellin, Peter, 2003. "The Equilibrium Rate of Unemployment and the Real Exchange Rate: An Unobserved Components System Approach," Working Paper Series 152, Sveriges Riksbank (Central Bank of Sweden). [Downloadable!]
  5. Kenneth N. Kuttner & Adam S. Posen, 2002. "Passive Savers and Fiscal Policy Effectiveness in Japan," Peterson Institute Working Paper Series WP02-2, Peterson Institute for International Economics. [Downloadable!]
  6. Lindblad, Hans & Sellin, Peter, 2006. "A Simultaneous Model of the Swedish Krona, the US Dollar and the Euro," Working Paper Series 193, Sveriges Riksbank (Central Bank of Sweden). [Downloadable!]
  7. Alexia Prskawetz & Gustav Feichtinger & Mikulàš Luptàčik, 1998. "The accomplishment of the Maastricht criteria with respect to initial debt," Journal of Economics, Springer, vol. 68(2), pages 93-110, June. [Downloadable!] (restricted)
  8. Tatsuji Hayakawa & Paul Zak, 2002. "Debt, Death and Taxes," International Tax and Public Finance, Springer, vol. 9(2), pages 157-173, March. [Downloadable!] (restricted)
  9. Eric M. Engen & R. Glenn Hubbard, 2004. "Federal Government Debt and Interest Rates," NBER Working Papers 10681, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  10. Douglas W. Elmendorf, 1996. "The effects of deficit-reduction laws on real interest rates," Finance and Economics Discussion Series 96-44, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
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