 The Economic of the Government Budget ConstraintStanley Fischer and William Easterly The World Bank Research Observer, 1990, vol. 5, issue 2, 127-42 Abstract: This article summarizes the simple analytics of the macroeconomic effects of government budget deficits. The presentation is organized around three key relationships: the national income accounts budget deficit identity, the deficit financing identity, and the dyamic equation for the evolution of the ratio of public debt to gross national product. The national income accounts identity highlights the effect of the deficit on domestic saving and investment and the current account. Examining the financing of the deficit brings to light the different kinds of macroeconomic imbalance of the deficit can cause--as a first approximation, printing money excessively shows up as inflation, excessive use of foreign reserves leads to crises in the balance of payments, high foreign borrowing leads to a debt crisis, and too much domestic borrowing leads to high real interest rates and crowding out to private investment. The debt dynamics equation is used to show the long-run constraints on fiscal policy. Copyright 1990 by Oxford University Press. Date: 1990 There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it. Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:oup:wbrobs:v:5:y:1990:i:2:p:127-42 Ordering information: This journal article can be ordered from Access Statistics for this article The World Bank Research Observer is currently edited by Peter Lanjouw More articles in The World Bank Research Observer from World Bank Oxford University Press, Great Clarendon Street, Oxford OX2 6DP, UK. Contact information at EDIRC. |
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