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Journal of Economic Perspectives: Vol. 3 No. 2 (Spring 1989)

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The Ricardian Approach to Budget Deficits

Article Citation

Barro, Robert J. 1989. "The Ricardian Approach to Budget Deficits." Journal of Economic Perspectives, 3(2): 37-54.

DOI: 10.1257/jep.3.2.37

Abstract

In recent years there has been a lot of discussion about U.S. budget deficits. Many economists and other observers have viewed these deficits as harmful to the U.S. and world economies. The supposed harmful effects include high real interest rates, low saving, low rates of economic growth, large current-account deficits in the United States and other countries with large budget deficits, and either a high or low dollar (depending apparently on the time period). This crisis scenario has been hard to maintain along with the robust performance of the U.S. economy since late 1982. Persistent budget deficits have increased economists' interest in theories and evidence about fiscal policy. At the same time, the conflict between standard predictions and actual outcomes in the U.S. economy has, I think, increased economists' willingness to consider approaches that depart from the standard paradigm. In this paper, I will focus on the alternative theory that is associated with the name of David Ricardo.

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Authors

Barro, Robert J. (Unlisted)

JEL Classifications

322: National Government Budgeting and Deficits
023: Macroeconomics of Intertemporal Choice
321: Fiscal Theory; Empirical Studies Illustrating Fiscal Theory

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