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Budget Deficits and Economic Growth

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  • Belton, Willie
  • Cebula, Richard

Abstract

The present paper examines the impact that budget deficits exercise on economic growth in the United States. Using a simple growth model that includes a variety of public policy variables, we provide Instrumental Variables (IV) estimates that indicate growth in the United States over time. The findings imply that higher levels of government spending have a minimal effect on economic growth, whereas higher budget deficits and tax rates reduce economic growth.

Suggested Citation

  • Belton, Willie & Cebula, Richard, 1992. "Budget Deficits and Economic Growth," MPRA Paper 61413, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:61413
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    References listed on IDEAS

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    6. Cebula, Richard J, 1991. "Federal Government Budget Deficits and Interest Rates: Reply," Public Finance = Finances publiques, , vol. 46(2), pages 331-334.
    7. Cebula, Richard, 1990. "A Note on Federal Budget Deficits and the Term Structure of Real Interest Rates in the United States," MPRA Paper 50238, University Library of Munich, Germany.
    8. Mascaro, Angelo & Meltzer, Allan H., 1983. "Long- and short-term interest rates in a risky world," Journal of Monetary Economics, Elsevier, vol. 12(4), pages 485-518, November.
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    Citations

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    Cited by:

    1. Blanca Sanchez-Robles, 1998. "Macroeconomic stability and economic growth: the case of Spain," Applied Economics Letters, Taylor & Francis Journals, vol. 5(9), pages 587-591.
    2. Richard J. Cebula, 2008. "Small Firm Size and Health Insurance: A Private Enterprise Perspective," Journal of Private Enterprise, The Association of Private Enterprise Education, vol. 24(Fall 2008), pages 51-77.
    3. Aviral Kumar Tiwari & Mamoni Kalita, 2011. "Governance and Foreign Aid in ASIAN Countries," Economics Bulletin, AccessEcon, vol. 31(1), pages 453-465.
    4. Richard J. Cebula, 2013. "Budget Deficits, Economic Freedom, and Economic Growth in OECD Nations: P2SLS Fixed-Effects Estimates, 2003–2008," Journal of Private Enterprise, The Association of Private Enterprise Education, vol. 28(Spring 20), pages 75-96.
    5. Francois Facchini, 2018. "What Are the Determinants of Public Spending? An Overview of the Literature," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 46(4), pages 419-439, December.
    6. Cebula, Richard & Ekstrom, Marcus, 2008. "Economic Growth, Economic Freedom, and Governance," MPRA Paper 56702, University Library of Munich, Germany.
    7. Dinabandhu Sethi & V. V. Subba Rao & Asit Ranjan Mohanty, 2020. "Threshold level of fiscal deficit: revisiting FRBMA limit in Indian states," Journal of Social and Economic Development, Springer;Institute for Social and Economic Change, vol. 22(2), pages 233-249, December.
    8. Cuong Le Van & Phu Nguyen‐Van & Amélie Barbier‐Gauchard & Duc‐Anh Le, 2019. "Government expenditure, external and domestic public debt, and economic growth," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 21(1), pages 116-134, February.
    9. Richard J. Cebula & Franklin G. Mixon Jr., 2014. "The Roles of Economic Freedom and Regulatory Quality in Creating a Favorable Environment for Investment in Energy R&D, Infrastructure, and Capacity," American Journal of Economics and Sociology, Wiley Blackwell, vol. 73(2), pages 299-324, April.
    10. Cebula, Richard J. & Clark, J.R. & Mixon, Franklin G., Jr., 2013. "The Impact of Economic Freedom on Per Capita Real GDP: A Study of OECD Nations," Journal of Regional Analysis and Policy, Mid-Continent Regional Science Association, vol. 43(1).
    11. Richard Cebula, 2010. "Impact of trade freedom on per capita real GDP growth among OECD nations: recent panel data evidence," Applied Economics Letters, Taylor & Francis Journals, vol. 17(17), pages 1687-1690.
    12. Mohanty, Ranjan Kumar & Sahoo, Biresh K., 2017. "Examining the Eco-Macroeconomic Performance Index of India: A Data Envelopment Analysis Approach," Working Papers 17/202, National Institute of Public Finance and Policy.
    13. Richard Cebula & Franklin Mixon, 2012. "The Impact of Fiscal and Other Economic Freedoms on Economic Growth: An Empirical Analysis," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 18(2), pages 139-149, May.
    14. Richard Cebula & J. Clark, 2012. "Lessons from the experience of OECD nations on macroeconomic growth and economic freedom, 2004–2008," International Review of Economics, Springer;Happiness Economics and Interpersonal Relations (HEIRS), vol. 59(3), pages 231-243, September.
    15. Richard J. Cebula, 2011. "Economic Growth, Ten Forms of Economic Freedom, and Political Stability: An Empirical Study Using Panel Data, 2003–2007," Journal of Private Enterprise, The Association of Private Enterprise Education, vol. 26(Spring 20), pages 61-81.

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    More about this item

    Keywords

    budget deficits; economic growth; taxes; government spending;
    All these keywords.

    JEL classification:

    • E02 - Macroeconomics and Monetary Economics - - General - - - Institutions and the Macroeconomy
    • H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

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