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U.S. Budget Deficits and the European Economies: Resolving the Political Economy Puzzle


  • Feldstein, Martin


This paper, prepared for the annual meetings of the American Economic Association, discusses how the increases in the U.S. budget deficits since 1980 have affected the economies of Western Europe. The analysis emphasizes that U.S. deficits have not only affected these economies directly but have also induced them to adopt more restrictive monetary and fiscal policies than they would otherwise have chosen. This induced shift in domestic policies is the primary reason why European governments have pressed for a reduction in the U.S. budget deficits despite the favorable impact of those deficits on European trade surpluses.
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  • Feldstein, Martin, 1986. "U.S. Budget Deficits and the European Economies: Resolving the Political Economy Puzzle," American Economic Review, American Economic Association, vol. 76(2), pages 342-346, May.
  • Handle: RePEc:aea:aecrev:v:76:y:1986:i:2:p:342-46

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    References listed on IDEAS

    1. Martin Feldstein, 1983. "Inflation, Income Taxes, and the Rate of Interest: A Theoretical Analysis," NBER Chapters,in: Inflation, Tax Rules, and Capital Formation, pages 28-43 National Bureau of Economic Research, Inc.
    2. Paul R. Krugman, 1985. "Is the strong dollar sustainable?," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 103-155.
    3. Jeffrey Sachs, 1985. "The Dollar and the Policy Mix: 1985," NBER Working Papers 1636, National Bureau of Economic Research, Inc.
    4. Jeffrey D. Sachs, 1985. "The Dollar and the Policy Mix: 1985," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 16(1), pages 117-197.
    5. Olivier J. Blanchard & Lawrence H. Summers, 1984. "Perspectives on High World Real Interest Rates," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 15(2), pages 273-334.
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    1. repec:kap:iaecre:v:17:y:2011:i:1:p:45-65 is not listed on IDEAS
    2. Martin Feldstein, 1993. "The Dollar and the Trade Deficit in the 1980s: A Personal View," NBER Working Papers 4325, National Bureau of Economic Research, Inc.
    3. Martin Feldstein, 1986. "New Evidence on the Effects of Exchange Rate Intervention," NBER Working Papers 2052, National Bureau of Economic Research, Inc.
    4. Karl FARMER & Birgit FRIEDL & Andreas RAINER, "undated". "Unilateral Reduction of Emission Permits, Terms of Trade, Capital Accumulation, and Welfare in a World Economy: Theoretical and Numerical Analysis," EcoMod2008 23800036, EcoMod.
    5. Rachel McCulloch, 1988. "Macroeconomic Policy and Trade Performance: International Implications and U.S. Budget Deficits," NBER Chapters,in: Issues in US-EC Trade Relations, pages 349-370 National Bureau of Economic Research, Inc.
    6. Karl Farmer & Jacopo Zotti, 2010. "Sustainable government debt in a two-good, two-country overlapping generations model," International Review of Economics, Springer;Happiness Economics and Interpersonal Relations (HEIRS), vol. 57(3), pages 289-316, September.
    7. Jean-Paul Fitoussi & Edmund S. Phelps, 1987. "Politique économique aux Etats-Unis et croissance du chômage en Europe," Revue de l'OFCE, Programme National Persée, vol. 18(1), pages 123-147.

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