Region Focus

2010

 

Second Quarter 2010

Do Deficits Matter? And If So, How? As fiscal imbalances increase, economists debate their effect on the macroeconomy

Whether budget deficits matter is an important political, economic, and policy issue, especially given large projected expenditures for entitlement programs. Economists seem to agree that deficits are not inherently inflationary. But their effects on interest rates and other economic variables are less certain.

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Related Links

Congressional Budget Office Website. http://www.cbo.gov/

Engen, Eric M., and R. Glenn Hubbard. "Federal Government Debt and Interest Rates." National Bureau of Economic Research Working Paper No. 10681, August 2004.

Feldstein, Martin. "Budget Deficits and National Debt." L.K. Jha Memorial Lecture to the Reserve Bank of India, Jan. 12, 2004.

Gale, William G., and Peter R. Orszag. "Budget Deficits, National Savings, and Interest Rates." Brookings Panel on Economic Activity, September 2004.

Pakko, Michael. "Deficits, Debt, and Looming Disaster: Reform of Entitlement Programs May be the Only Hope." Federal Reserve Bank of St. Louis Regional Economist, January 2009, vol. 17, no. 1, pp. 4-9.

Sill, Keith. "Do Budget Deficits Cause Inflation?" Federal Reserve Bank of Philadelphia Business Review, Third Quarter 2005, pp. 26-33.

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