The economics of the government budget constraint
AbstractExcessive budget deficits can lead to inflation, exchange crises, external debt crises, and high real interest rates - with implications for real exchange rate, the trade account, and investment. But the links are not automatic, for there are choices in the sources of financing - and lags in the effects of money printing and borrowing on inflation anad interest rates. Small deficits can be financed without creating excessive inflation, exchange rate crises, or an excess buildup of debt. Whether any particular path of fiscal policy is sustainable has to be checked through projections of the debt-to-GNP ratio. A given deficit is more likely to be sustainable the higher the growth rate of output. Theory and evidence both warn that large budget deficits pose real threats to macroeconomic stability and therfore to economic growth and development.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by The World Bank in its series Policy Research Working Paper Series with number 224.
Date of creation: 31 May 1989
Date of revision:
Economic Theory&Research; Economic Stabilization; Banks&Banking Reform; Public Sector Economics&Finance; Environmental Economics&Policies;
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.:
- Alain Ize & Guillermo Ortiz, 1987. "Fiscal Rigidities, Public Debt, and Capital Flight," IMF Staff Papers, Palgrave Macmillan, vol. 34(2), pages 311-332, June.
- Buiter, W.H., 1988.
"Some Thoughts On The Role Of Fiscal Policy In Stabilisation And Structural Adjustment In Developing Countries,"
312, London School of Economics - Centre for Labour Economics.
- Willem H. Buiter, 1988. "Some Thoughts on the Role of Fiscal Policy in Stabilisation and Structural Adjustment in Developing Countries," NBER Working Papers 2603, National Bureau of Economic Research, Inc.
- Buiter, Willem H, 1988. "Some Thoughts on the Role of Fiscal Policy in Stabilization and Structural Adjustment in Developing Countries," CEPR Discussion Papers 260, C.E.P.R. Discussion Papers.
- L. Wade, 1988. "Review," Public Choice, Springer, vol. 58(1), pages 99-100, July.
- Thomas J. Sargent & Neil Wallace, 1981. "Some unpleasant monetarist arithmetic," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Fall.
- Easterly, William R., 1989. "Fiscal adjustment and deficit financing during the debt crisis," Policy Research Working Paper Series 138, The World Bank.
- Kiguel, Miguel A. & Liviatan, Nissan, 1988. "Inflationary rigidities and stabilization policies," Policy Research Working Paper Series 4, The World Bank.
- Balassa, Bela, 1988. "Public finance and economic development," Policy Research Working Paper Series 31, The World Bank.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Roula I. Yazigi).
If references are entirely missing, you can add them using this form.