The Economic Consequences of Federal Deficits: An Examination of the Net Wealth and Instability Issues

Barth, James R.; Iden, George; Russek, Frank S.

doi:10.2307/1058952

Cited by 17 publications

(8 citation statements)

References 20 publications

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“…This finding contradicts most of the related literature, including Evans (1985), Makin (1983), andHoelscher (1983). However, these findings are consistent with Barth, Iden, and Russek (1984;, the study by Hoelscher (1986), and Feldstein and Eckstein (1970). He also concluded that the empirical results presented imply the actual existence of a mechanism for the transmission of crowding out.…”

Section: The Is-lm and Interest Rate Modelsmentioning

confidence: 50%

“…The most obvious way in which governments can use fiscal measures to affect net wealth and the current account balance is by their own expenditure (this will be discussed later in this section). Barth et al (1986) suggests that, as long as the rate of growth of output (y & ) exceeds the rate of interest (i ), public debt is unambiguously net wealth. The reason is that, in such circumstances, future taxes are not necessary to service the debt.…”

Section: Deficits Wealth and Spending Effectsmentioning

confidence: 99%

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The Budget Deficit and Economic Performance: A Survey

Saleh

Harvie

2005

Singapore Econ. Rev.

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The relationship between budget deficits and macroeconomic variables (such as growth, interest rates, trade deficit, exchange rate, among others) represents one of the most widely debated topics among economists and policy makers in both developed and developing countries. However, the purpose of this paper is to examine the extensive literature to such a relationship, concentrating on theoretical debates, empirical studies, and econometric models in order to derive substantive conclusions, which can be beneficial in terms of macroeconomics area or in terms of constructing or developing a macroeconomic model for analysing the impact of budget deficits on macroeconomic variables. The majority of these studies regress a macroeconomic variable on the deficit variable. These studies are cross-country and utilise time series data. In general the key outcomes from the studies presented in this paper indicated that both the method of financing and the components of government expenditures could have different effects. Therefore, it is crucial to distinguish between current and capital expenditure when evaluating the impact of fiscal policy on private investment and output growth. Even though, the overall results from the empirical literature with respect to the impact of public investment on private investment and growth are ambiguous, the bulk of the empirical studies finds a significantly negative effect of public consumption expenditure on growth, while the effects of public investment expenditure are found to be positive although less robust. The key outcome from all of the studies presented in this paper which investigating the relationship between the budget deficit and current account deficit showed strong evidence in both developed and developing countries towards supporting the Keynesian proposition (conventional view) which suggests that an increase in the budget deficit would induce domestic absorption and, hence import expansion, causing a current account deficit. Furthermore, it can also be concluded from the empirical findings that the effects of budget deficits on exchange rates depends on the way of funding the deficits, whether through taxation or through money growth. The key findings from the empirical studies investigating the relationship between the budget deficit and interest rates indicated strong evidence towards supporting the Keynesian model of a significant and positive relationship between budget deficits and interest rates. The major outcomes from the empirical studies examining the relationship between budget deficits and inflation showed strong evidence that the budget deficit financed through monetisation and a rising money supply could lead to inflation. * I would like to thank A/P Charles Harvie and A/P Edgar J Wilson for their helpful comments and suggestions.

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Section: The Is-lm and Interest Rate Modelsmentioning

confidence: 50%

Section: Deficits Wealth and Spending Effectsmentioning

confidence: 99%

The Budget Deficit and Economic Performance: A Survey

Saleh

Harvie

2005

Singapore Econ. Rev.

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show abstract

“…They investigated whether federal debt is a part of net private wealth, whether there is evidence of "debt-neutrality" relative to private consumption and saving, and whether federal debt would show a tendency to increase without limit under certain circumstances. Although the empirical results reported by Barth, Iden, and Russek [2] are somewhat mixed, it appears useful to reflect a little on the possible linkage 5. Even though degrees of freedom get considerably curtailed if one deals only with annual data pertaining to the period after World War II, results from those data show a picture that is broadly similar to the one indicated by quarterly observations for that period.…”

Section: The Main Resultsmentioning

confidence: 90%

“…A discussion of the theoretical positions concerning the direction of causality between government revenue and expenditure has been provided in several studies, including the recent papers by Anderson, Wallace, and Warner [1, 630-32] and von Furstenberg, Green, and Jeong [12], and need not be repeated here. However, one point might seem interesting in the context of the issues recently addressed by Barth, Iden, and Russek [2]. They investigated whether federal debt is a part of net private wealth, whether there is evidence of "debt-neutrality" relative to private consumption and saving, and whether federal debt would show a tendency to increase without limit under certain circumstances.…”

Section: The Main Resultsmentioning

confidence: 99%

Additional Evidence on Causality between Government Revenue and Government Expenditure

Ram¹

1988

Southern Economic Journal

138

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“…For a detailed analysis of the Keynesian and Ricardian equivalence paradigms within the framework of the IS-LM schedule, see Barth et al [1986]. 4.…”

mentioning

confidence: 99%

Budget deficits and economic activity

Vamvoukas¹

1999

International Advances in Economic Research

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The Economic Consequences of Federal Deficits: An Examination of the Net Wealth and Instability Issues

Cited by 17 publications

References 20 publications

The Budget Deficit and Economic Performance: A Survey

The Budget Deficit and Economic Performance: A Survey

Additional Evidence on Causality between Government Revenue and Government Expenditure

Budget deficits and economic activity

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