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Budget deficits and U.S. economic growth

  • Atrayee Ghosh Roy

    ()

    (Minnesota State University, Mankato)

  • Hendrik Van den Berg

    ()

    (University of Nebraska-Lincoln)

Registered author(s):

    This paper explores how the U.S. budget deficit affects U.S. economic growth. Time-series data for the 1973-2004 period is applied to a simultaneous equation model to estimate the various direct and indirect effects of budget deficits on growth. The results indicate that, ceteris paribus, an increase in budget deficits slows growth. However, the “twin” current account deficits, which our model shows tend to accompany budget deficits, increase growth. Hence, the overall relationship between budget deficits and economic growth is ambiguous.

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    File URL: http://www.accessecon.com/Pubs/EB/2009/Volume29/EB-09-V29-I4-P290.pdf
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    Article provided by AccessEcon in its journal Economics Bulletin.

    Volume (Year): 29 (2009)
    Issue (Month): 4 ()
    Pages: 3015-3030

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    Handle: RePEc:ebl:ecbull:eb-08h60001
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    1. Fischer, Stanley, 1993. "The role of macroeconomic factors in growth," Journal of Monetary Economics, Elsevier, vol. 32(3), pages 485-512, December.
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    4. Kraay, Aart & Ventura, Jaume, 2005. "The dot-com bubble, the Bush deficits, and the U.S. current account," Policy Research Working Paper Series 3672, The World Bank.
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    8. Ball, Laurence & Elmendorf, Douglas W & Mankiw, N Gregory, 1998. "The Deficit Gamble," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 30(4), pages 699-720, November.
    9. Bleaney, Michael & Greenaway, David, 2001. "The impact of terms of trade and real exchange rate volatility on investment and growth in sub-Saharan Africa," Journal of Development Economics, Elsevier, vol. 65(2), pages 491-500, August.
    10. Selahattin Dibooglu, 1995. "Accounting for U.S. Current Account Deficits: An Empirical Investigation," International Finance 9502003, EconWPA.
    11. Chinn, Menzie D. & Ito, Hiro, 2007. "Current account balances, financial development and institutions: Assaying the world "saving glut"," Journal of International Money and Finance, Elsevier, vol. 26(4), pages 546-569, June.
    12. Henning Bohn, 1991. "The sustainability of budget deficits with lump-sum and with income-based taxation," Proceedings, Federal Reserve Bank of Cleveland, pages 580-612.
    13. Christopher Blattman & Jason Hwang & Jeffrey G. Williamson, 2003. "The Terms of Trade and Economic Growth in the Periphery 1870-1938," NBER Working Papers 9940, National Bureau of Economic Research, Inc.
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