The Congress and fiscal policy

Although the common belief is that the Congress has paid little attention to fiscal policy, the same kinds of political-economic models which have been used to explain presidential budgetary policy may be used equally well to explain congressional budgetary behavior. The Congress' fiscal policy appears to be systematically sensitive to both economic and political factors. Changes in the unemployment rate have a major impact on congressional budgetary policy. As for political factors, the President's lead is followed most closely on revenue proposals and not at all on the expenditure side. The electoral cycle, in particular the off-year congressional election year, is also important; inducing larger deficits and smaller increases in revenues. When the influences on congressional fiscal behavior are compared with those on presidential behavior, the sources of the generally more expansionary congressional fiscal policy are identified. Congressional budget deficits increase in response to increased rates of unemployment but are insensitive to increases in inflation. In contrast, presidential budgets are heavily influenced by inflation and the growth in personal income — increases in each resulting in smaller proposed deficits — as well as by unemployment rates. In years in which both unemployment and inflation are increasing, the combination of the two (assuming a one percentage point change in each) implies an increase in the congressional deficit of $6.7 billion but a decrease in the president's proposed deficit of $2.5 billion. The implications of this study are a challenge to the literature which makes the President the central actor in macro-economic policy. Copyright Kluwer Academic Publishers 1988