The American Fiscal Deficit: Facts and Effects

Herschel Grossman

No 934, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: The main objective of this paper is to understand and to evaluate recently expressed popular anxiety about large American fiscal deficits. The paper begins with a discussion of problems involved in measuring the fiscal deficit. A general conclusion is that all interesting measures of the federal fiscal deficit have increased substantially over the past eight presidential terms and are likely to increase further in the near future. The paper goes on to analyze possible connections between fiscal deficits and inflation, economic growth, and fluctuations in the level and composition of economic activity. Important conclusions are that monetary policy, inflation, and aggregate economic activity are all largely independent of the fiscal deficit, but that the fiscal deficit can have major effects on the division of output between consumption and investment. Key elements in the analysis are the effects of taxation on consumption and investment demands and the relations between real and financial developments.

Date: 1982-07
Note: EFG
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Published as Grossman, Herschel I. "The American Fiscal Deficit: Facts and Effects." American Enterprise Institute, (November 1982).

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