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


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A Neoclassical Perspective on Budget Deficits

Article Citation

Bernheim, B Douglas. 1989. "A Neoclassical Perspective on Budget Deficits." Journal of Economic Perspectives, 3(2): 55-72.

DOI: 10.1257/jep.3.2.55


Generally speaking, there are three schools of thought concerning the economic effects of budget deficits: Neoclassical, Keynesian, and Ricardian. It is remarkable that from among these three schools of thought, one can find support for every conceivable normative position. Whether one thinks of deficits as good, bad, or irrelevant therefore depends fundamentally on one's choice of a paradigm. Certainly, no single paradigm corresponds exactly to reality. Nevertheless, it is my view that the Neoclassical framework offers the most relevant insights into the economic effects of deficits. The new Administration would do well to focus on the goals of stimulating saving and capital accumulation, and to formulate a policy for gradually reducing permanent deficits.

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Bernheim, B. Douglas (Unlisted)

JEL Classifications

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


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