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Budget Deficits, Domestic Investment, And Trade Deficits


  • HARJIT K. Arora
  • PAMI Dua


This paper summarizes recent empirical studies on the effects of budget deficits on interest rates, investment, and trade deficits in the United States. It also reports new evidence on the effects of budget deficits on investment and on trade deficits for the 1980s. The results support the view that budget deficits crowd out domestic investment and increase trade deficits. Copyright 1993 Western Economic Association International.

Suggested Citation

  • HARJIT K. Arora & PAMI Dua, 1993. "Budget Deficits, Domestic Investment, And Trade Deficits," Contemporary Economic Policy, Western Economic Association International, vol. 11(1), pages 29-44, January.
  • Handle: RePEc:bla:coecpo:v:11:y:1993:i:1:p:29-44

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    References listed on IDEAS

    1. Evans, Paul, 1985. "Do Large Deficits Produce High Interest Rates?," American Economic Review, American Economic Association, vol. 75(1), pages 68-87, March.
    2. Johnson, Colleen F, 1991. "Interest Rates, Expected Future Deficits and Tax Proposals," Economic Inquiry, Western Economic Association International, vol. 29(1), pages 190-193, January.
    3. Allen, Stuart D., 1990. "The effect of federal deficits and debt on the tax-adjusted, short-term, real interest rate," Economics Letters, Elsevier, vol. 34(2), pages 169-173, October.
    4. Barro, Robert J, 1974. "Are Government Bonds Net Wealth?," Journal of Political Economy, University of Chicago Press, vol. 82(6), pages 1095-1117, Nov.-Dec..
    5. Barth, James R & Russek, Frank S & Wang, George H K, 1986. "A Time Series Analysis of the Relationship between the Capital Stock and Federal Debt: A Comment," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 18(4), pages 527-538, November.
    6. Kanhaya Gupta, 1989. "Budget deficits and interest rates in the United States," Public Choice, Springer, vol. 60(1), pages 87-92, January.
    7. McMillin, W. Douglas, 1986. "Federal deficits and short-term interest rates," Journal of Macroeconomics, Elsevier, vol. 8(4), pages 403-422.
    8. Kim, Sun-Young & Lombra, Raymond E., 1989. "Why the empirical relationship between deficits and interest rates appears so fragile," Journal of Economics and Business, Elsevier, vol. 41(3), pages 241-251, August.
    9. Richard Cebula, 1989. "More on budget deficits and interest rates in the United States," Public Choice, Springer, vol. 60(1), pages 93-97, January.
    10. Kolluri, Bharat R. & Giannaros, Demetrios S., 1987. "Budget deficits and short-term real interest rate forecasting," Journal of Macroeconomics, Elsevier, vol. 9(1), pages 109-109.
    11. Abell, John D., 1990. "Twin deficits during the 1980s: An empirical investigation," Journal of Macroeconomics, Elsevier, vol. 12(1), pages 81-96.
    12. Bovenberg, A.L., 1988. "Long-term interest rates in the United States : An empirical analysis," Other publications TiSEM eb2d645e-6795-456d-b090-4, Tilburg University, School of Economics and Management.
    13. A. Lans Bovenberg, 1988. "Long-Term Interest Rates in the United States: An Empirical Analysis," IMF Staff Papers, Palgrave Macmillan, vol. 35(2), pages 382-390, June.
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    Cited by:

    1. Selahattin Dibooglu, 1997. "Accounting for US current account deficits: an empirical investigation," Applied Economics, Taylor & Francis Journals, vol. 29(6), pages 787-793.
    2. Hanson, Kenneth & Somwaru, Agapi, 2003. "Distributional Effects Of U.S. Farm Commodity Programs: Accounting For Farm And Non-Farm Households," 2003 Annual meeting, July 27-30, Montreal, Canada 21944, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    3. repec:kap:iaecre:v:19:y:2013:i:3:p:289-310 is not listed on IDEAS
    4. Jamee K. Moudud, "undated". "Government Spending in a Growing Economy, Fiscal Policy and Growth Cycles," Economics Public Policy Brief Archive ppb_52, Levy Economics Institute.
    5. Francesco Forte & Cosimo Magazzino, 2013. "Twin Deficits in the European Countries," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 19(3), pages 289-310, August.
    6. Jamee K. Moudud, 1998. "Government Spending and Growth Cycles: Fiscal Policy in a Dynamic Context," Economics Working Paper Archive wp_260, Levy Economics Institute.

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