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Budget deficits and U.S. economic growth

Listed author(s):
  • 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. Kwiatkowski, D. & Phillips, P.C.B. & Schmidt, P., 1990. "Testing the Null Hypothesis of Stationarity Against the Alternative of Unit Root : How Sure are we that Economic Time Series have a Unit Root?," Papers 8905, Michigan State - Econometrics and Economic Theory.
    2. Mendoza, Enrique G., 1997. "Terms-of-trade uncertainty and economic growth," Journal of Development Economics, Elsevier, vol. 54(2), pages 323-356, December.
    3. Sebastian Edwards, 1997. "Openness, Productivity and Growth: What Do We Really Know?," NBER Working Papers 5978, National Bureau of Economic Research, Inc.
    4. 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.
    5. Laurence Ball & Douglas W. Elmendorf & N. Gregory Mankiw, 1995. "The Deficit Gamble," NBER Working Papers 5015, National Bureau of Economic Research, Inc.
    6. Laurence Ball & N. Gregory Mankiw, 1995. "What do Budget Deficits Do?," Harvard Institute of Economic Research Working Papers 1740, Harvard - Institute of Economic Research.
    7. 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.
    8. Aart Kraay & Jaume Ventura, 2005. "The Dot-Com Bubble the Bush Deficits, and the U.S. Current Account," NBER Working Papers 11543, National Bureau of Economic Research, Inc.
    9. 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.
    10. Selahattin Dibooglu, 1995. "Accounting for U.S. Current Account Deficits: An Empirical Investigation," International Finance 9502003, EconWPA.
    11. 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.
    12. Stanley Fischer, 1993. "The Role of Macroeconomic Factors in Growth," NBER Working Papers 4565, National Bureau of Economic Research, Inc.
    13. Esfahani, Hadi Salehi, 1991. "Exports, imports, and economic growth in semi-industrialized countries," Journal of Development Economics, Elsevier, vol. 35(1), pages 93-116, January.
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