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Budget deficits and U.S. economic growth

Author

Listed:
  • Atrayee Ghosh Roy

    () (Minnesota State University, Mankato)

  • Hendrik Van den Berg

    () (University of Nebraska-Lincoln)

Abstract

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.

Suggested Citation

  • Atrayee Ghosh Roy & Hendrik Van den Berg, 2009. "Budget deficits and U.S. economic growth," Economics Bulletin, AccessEcon, vol. 29(4), pages 3015-3030.
  • Handle: RePEc:ebl:ecbull:eb-08h60001
    as

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    File URL: http://www.accessecon.com/Pubs/EB/2009/Volume29/EB-09-V29-I4-P290.pdf
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    References listed on IDEAS

    as
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    4. 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.
    5. 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.
    6. Bohn, Henning, 1991. "The Sustainability of Budget Deficits with Lump-Sum and with Income-Based Taxation," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 23(3), pages 580-604, August.
    7. Kwiatkowski, Denis & Phillips, Peter C. B. & Schmidt, Peter & Shin, Yongcheol, 1992. "Testing the null hypothesis of stationarity against the alternative of a unit root : How sure are we that economic time series have a unit root?," Journal of Econometrics, Elsevier, vol. 54(1-3), pages 159-178.
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    More about this item

    Keywords

    economic growth; budget deficits; stationary; simultaneity;

    JEL classification:

    • H6 - Public Economics - - National Budget, Deficit, and Debt
    • F3 - International Economics - - International Finance

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