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The federal government's budget surplus: Cause for celebration?

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  • Gerald P. Dwyer
  • Rik Hafer

Abstract

Projected surpluses in the federal government's budget have generated fanfare sometimes verging on euphoria. Because the federal government last had a surplus in 1969, a projected surplus for fiscal year 1998 and later years is being viewed as something of a milestone. Unlike policies of the last three decades that have at least paid lip service to lowering the deficit, policy options now may include ways to use the surplus. Some have called for lowering taxes and others for increasing expenditures or retiring federal government debt. ; This article discusses the importance of going beyond the budget deficit to consider both spending and taxes when analyzing the federal government's budget. The projected surpluses are based on projections of slower growth in federal government spending than in receipts. The authors interpret these surpluses as largely reflecting taxes paid now to finance expected increases in future spending, in particular on Social Security. ; More generally, in their view a budget surplus or deficit is not an adequate summary of how federal government spending and taxes affect the economy. A surplus or deficit is a result of choices concerning spending and taxation, choices that have substantial implications for the allocation of resources in the economy. The authors conclude that any analysis of fiscal policy that neglects spending, taxes, and tax rates is woefully deficient.

Suggested Citation

  • Gerald P. Dwyer & Rik Hafer, 1998. "The federal government's budget surplus: Cause for celebration?," Economic Review, Federal Reserve Bank of Atlanta, vol. 83(Q 3), pages 42-51.
  • Handle: RePEc:fip:fedaer:y:1998:i:q3:p:42-51:n:v.83no.3
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    References listed on IDEAS

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    1. Penner, Rudolph G., 1982. "How much is owed by the federal government?," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 16(1), pages 233-256, January.
    2. Cardarelli, Roberto & Sefton, James & Kotlikoff, Laurence J, 2000. "Generational Accounting in the UK," Economic Journal, Royal Economic Society, vol. 110(467), pages 547-574, November.
    3. Roy H. Webb, 1991. "The stealth budget: unfunded liabilities of the federal government," Economic Review, Federal Reserve Bank of Richmond, vol. 77(May), pages 23-33.
    4. Seater, John J, 1993. "Ricardian Equivalence," Journal of Economic Literature, American Economic Association, vol. 31(1), pages 142-190, March.
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    1. Philip Arestis & Malcolm Sawyer, 2006. "The Case for Fiscal Policy," Palgrave Macmillan Books, in: Philip Arestis & Jesus Ferreiro & Felipe Serrano (ed.), Financial Developments in National and International Markets, chapter 6, pages 103-117, Palgrave Macmillan.

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