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The Case for a New Fiscal Constitution

Author

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  • William A. Niskanen

Abstract

For the first 140 years of U.S. history, the federal budget was effectively constrained by two fiscal rules: the formal limits within the Constitution on the enumerated spending powers and an informal rule that the government could borrow only during recessions and wars. At the end of the 1920s, federal expenditures were 2.6 percent of GNP. The federal debt was constrained to about equal to 16 percent of GNP. The general price level was roughly stable over this long period. Over the past six decades, however, federal expenditures have increased to nearly 25 percent of GNP. Larger and more frequent budget deficits have increased the federal debt held by the public to an amount equal to about 50 percent of GNP. And the general price level is now about nine times the level at the beginning of this period. This dramatic change in fiscal and monetary conditions occurred without one amendment to the Constitution to authorize a change in the fiscal rules. Our effective fiscal constitution has been transformed into one in which Congress and the President may authorize any type or amount of expenditures and taxes, subject only to the voting rules for routine legislation. How did this happen? Should economists be concerned about this change in the fiscal constitution? What, if anything, should be done about it?

Suggested Citation

  • William A. Niskanen, 1992. "The Case for a New Fiscal Constitution," Journal of Economic Perspectives, American Economic Association, vol. 6(2), pages 13-24, Spring.
  • Handle: RePEc:aea:jecper:v:6:y:1992:i:2:p:13-24
    Note: DOI: 10.1257/jep.6.2.13
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    File URL: http://www.aeaweb.org/articles.php?doi=10.1257/jep.6.2.13
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    Citations

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    Cited by:

    1. Azzimonti, Marina & Battaglini, Marco & Coate, Stephen, 2016. "The costs and benefits of balanced budget rules: Lessons from a political economy model of fiscal policy," Journal of Public Economics, Elsevier, vol. 136(C), pages 45-61.
    2. Marco Battaglini & Stephen Coate, 2008. "A Dynamic Theory of Public Spending, Taxation, and Debt," American Economic Review, American Economic Association, vol. 98(1), pages 201-236, March.
    3. Bruno S. Frey & Alois Stutzer, "undated". "Direct Democracy: Designing a Living Constitution," IEW - Working Papers 167, Institute for Empirical Research in Economics - University of Zurich.
    4. Bruno S. Frey & Alois Stutzer, "undated". "The Role of Direct Democracy and Federalism in Local Power," IEW - Working Papers 209, Institute for Empirical Research in Economics - University of Zurich.
    5. Adam Geršl, 2007. "Political Economy of Public Deficit: Perspectives for Constitutional Reform," Czech Economic Review, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, vol. 1(1), pages 67-86, March.
    6. Marco Battaglini, 2009. "On the Case for a Balanced Budget Amendment to the U.S. Constitution," 2009 Meeting Papers 131, Society for Economic Dynamics.
    7. Frey, Bruno S., 2004. "Direct Democracy for a Living Constitution," Freiburg Discussion Papers on Constitutional Economics 04/5, Walter Eucken Institut e.V..
    8. Anwar Shah, 2006. "Fiscal decentralization and macroeconomic management," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 13(4), pages 437-462, August.
    9. Wohlgemuth, Michael & Sideras, Jörn, 2004. "Globalisability of Universalisability? How to apply the Generality Principle and Constitutionalism internationally," Freiburg Discussion Papers on Constitutional Economics 04/7, Walter Eucken Institut e.V..
    10. Steve Hanke, 2003. "Money and the rule of law in ecuador," Journal of Economic Policy Reform, Taylor & Francis Journals, vol. 6(3), pages 131-145.
    11. Dennis Mueller, 1999. "Fundamental Issues in Constitutional Reform: With Special Reference to Latin America and the United States," Constitutional Political Economy, Springer, vol. 10(2), pages 119-148, June.
    12. Shah, Anwar, 2005. "Fiscal decentralization and fiscal performance," Policy Research Working Paper Series 3786, The World Bank.

    More about this item

    JEL classification:

    • H60 - Public Economics - - National Budget, Deficit, and Debt - - - General
    • A11 - General Economics and Teaching - - General Economics - - - Role of Economics; Role of Economists

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