What do Budget Deficits Do?
This paper discusses the effects of budget deficits on the economy in four steps. First, it reviews standard theory about how budget deficits influence saving, investment, the trade balance, interest rates, exchange rates, and long-term growth. Second, it offers a rough estimate of the magnitude of some of the effects. Third, it discusses how budget deficits affect economic welfare. Finally, it considers the possibility that continuing budget deficits in a country could lead to a 'hard landing' in which the demand for the country's assets suddenly collapses.
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|Date of creation:||1995|
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Web page: http://www.economics.harvard.edu/journals/hier
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"The Deficit Gamble,"
NBER Working Papers
5015, National Bureau of Economic Research, Inc.
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Royal Economic Society, vol. 90(358), pages 314-29, June.
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- J. Bradford De Long & Lawrence H. Summers, 1990.
"Equipment Investment and Economic Growth,"
NBER Working Papers
3515, National Bureau of Economic Research, Inc.
- Gramlich, Edward M, 1989. "Budget Deficits and National Saving: Are Politicians Exogenous?," Journal of Economic Perspectives, American Economic Association, vol. 3(2), pages 23-35, Spring.
- B. Douglas Bernheim, 1987.
"Ricardian Equivalence: An Evaluation of Theory and Evidence,"
in: NBER Macroeconomics Annual 1987, Volume 2, pages 263-316
National Bureau of Economic Research, Inc.
- B. Douglas Bernheim, 1987. "Ricardian Equivalence: An Evaluation of Theory and Evidence," NBER Working Papers 2330, National Bureau of Economic Research, Inc.
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