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Can Expenditure Cuts Eliminate a Budget Deficit? The Australian Experience

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  • George Argyrous

    (The Jerome Levy Economics Institute)

Abstract

Australia Governments since the late 1970's have attempted to eliminate the fiscal deficit through reductions in expenditure. These efforts have failed. With each successive business cycle the Federal Government's budget outcome has been an ever growing deficit. This paper explains the failure of the government to achieve its balanced budget objective through expenditure reductions. It argues that the impact of these expenditure reductions on the course of the business cycle and the long term development of the economy has actually fed back onto the budget outcome in a negative way. These feedbacks have rendered the instruments for achieving its policy objective self-defeating. The paper explores the compositional changes in government outlays, away from capital to current outlays, that have resulted from this policy objective and which may have a detrimental effect on long run growth.

Suggested Citation

  • George Argyrous, 1998. "Can Expenditure Cuts Eliminate a Budget Deficit? The Australian Experience," Macroeconomics 9809003, EconWPA, revised 24 Feb 1999.
  • Handle: RePEc:wpa:wuwpma:9809003
    Note: Type of Document - Acrobat PDF; prepared on IBM PC; to print on PostScript; pages: 21; figures: included
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    References listed on IDEAS

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    1. Aschauer, David Alan, 1989. "Is public expenditure productive?," Journal of Monetary Economics, Elsevier, vol. 23(2), pages 177-200, March.
    2. Alicia H. Munnell, 1990. "Why has productivity growth declined? Productivity and public investment," New England Economic Review, Federal Reserve Bank of Boston, issue Jan, pages 3-22.
    3. John F. Henry & L. Randall Wray, 1998. "Economic Time," Macroeconomics 9811004, EconWPA.
    4. Sharon J. Erenburg, 1993. "The Relationship Between Public and Private Investment," Economics Working Paper Archive wp_85, Levy Economics Institute.
    5. Harvie, C. & Kearney, C., 1996. "Public Infrastructure Canpital and Private Investment," Economics Working Papers wp96-2, School of Economics, University of Wollongong, NSW, Australia.
    6. Seccareccia, M. & Sharpe, A., 1991. "Canada's Competitiveness: Beyond the Budget Deficit," Working Papers 9111e, University of Ottawa, Department of Economics.
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    JEL classification:

    • E - Macroeconomics and Monetary Economics

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