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

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Budget Deficits and National Saving: Are Politicians Exogenous?

Article Citation

Gramlich, Edward M. 1989. "Budget Deficits and National Saving: Are Politicians Exogenous?" Journal of Economic Perspectives, 3(2): 23-35.

DOI: 10.1257/jep.3.2.23

Abstract

After years of relative abstinence, the United States has experimented with persistent budget deficits on a rather massive scale in the 1980s. Economists have generally been quite critical of this fiscal policy, though there are respectable minority views arguing that federal deficits are not so bad and quite possibly better than likely corrective measures. In this paper, I examine the evidence that the great deficit experiment is generating. I first look at the deficits themselves to see how high they really are, dealing with a number of measurement criticisms that have been raised from various quarters. I then discuss two critical responses to the deficits—that of private saving and that of public spending—to determine the impact of the deficits on national saving. A key issue that recurs throughout the discussion is whether the political behavior that leads to the deficits can be taken as exogenous: Are private households better viewed as responding to exogenous public sector deficits, or is something in the air causing both public deficits and a decline in private saving?

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Authors

Gramlich, Edward M. (Unlisted)

JEL Classifications

322: National Government Budgeting and Deficits
921: Consumer Economics--Living Standards, Composition of Overall Expenditures, and Empirical Consumption and Savings Studies

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