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On the (Relative) Unimportance of a Balanced Budget

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  • Razzolini, Laura
  • Shughart, William F, II

Abstract

This paper explores the reasoning underlying Milton Friedman's preference for a small, unbalanced budget over a large, balanced one. Because the marginal return from government spending is less than the marginal cost (measured in terms of the amount of income private individuals remain free to spend), government expenditures have more of an adverse impact on the economy in his view than does the method of financing that spending. Using a panel data set comprising the 50 states plus the District of Columbia, the authors report evidence from the years 1967 through 1992 that growth rates in income per capita tend to be higher in states with smaller public sectors. Moreover, they find that while both deficits and taxes reduce the rate of income growth in a state, the negative impact of government spending is considerably larger at the margin. Copyright 1997 by Kluwer Academic Publishers

Suggested Citation

  • Razzolini, Laura & Shughart, William F, II, 1997. "On the (Relative) Unimportance of a Balanced Budget," Public Choice, Springer, vol. 90(1-4), pages 215-233, March.
  • Handle: RePEc:kap:pubcho:v:90:y:1997:i:1-4:p:215-33
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    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. State Spending Cuts Are Key Part of Brightening Our Fiscal Future
      by Anthony B. Kim in The Foundry on 2011-02-19 05:00:12

    Citations

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    Cited by:

    1. Dimitris Christopoulos & Efthymios Tsionas, 2002. "Unemployment and government size: Is there any credible causality?," Applied Economics Letters, Taylor & Francis Journals, vol. 9(12), pages 797-800.
    2. repec:ebl:ecbull:v:5:y:2006:i:1:p:1-12 is not listed on IDEAS
    3. Peter Calcagno & Monica Escaleras, 2007. "Party alternation, divided government, and fiscal performance within US States," Economics of Governance, Springer, vol. 8(2), pages 111-128, February.
    4. John Loizides & George Vamvoukas, 2005. "Government expenditure and economic growth: Evidence from trivariate causality testing," Journal of Applied Economics, Universidad del CEMA, vol. 8, pages 125-152, May.
    5. Auteri, Monica & Costantini, Mauro, 2004. "Fiscal Policy and Economic Growth: The Case of the Italian Regions," The Review of Regional Studies, Southern Regional Science Association, vol. 34(1), pages 72-94.
    6. Syed Ammad & Qazi Masood Ahmed, 2014. "Dynamic Effects of Energy Sector Public Investment on Sectoral Economic Growth: Experience from Pakistan Economy," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 53(4), pages 403-421.
    7. Magazzino, Cosimo, 2010. "Public expenditure and revenue in Italy, 1862-1993," MPRA Paper 27308, University Library of Munich, Germany.
    8. Dimitris Christopoulos & John Loizides & Efthymios Tsionas, 2005. "The Abrams curve of government size and unemployment: evidence from panel data," Applied Economics, Taylor & Francis Journals, vol. 37(10), pages 1193-1199.
    9. Efthyvoulou, Georgios, 2011. "Political cycles under external economic constraints: Evidence from Cyprus," Journal of Economics and Business, Elsevier, vol. 63(6), pages 638-662.
    10. Joe Stone & Jo Anna Gray, 2006. "Ricardian equivalence for sub-national states," Economics Bulletin, AccessEcon, vol. 5(1), pages 1-12.

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