Affordable Access

The macroeconomic effects of deficit spending: a review

  • Economics


The Macroeconomic Effects of Deficit Spending: A Review 48 K. ~4IecChrvstal and Daniel L. Thornton K. Alec Chrystal is the National Westminster Bank Professor of Personal Finance at City University, London, and Daniel L. Thorn- ton is a research officer at the Federal Reserve Bank of St. Louis, Dawn M. Peterson provided research assistance, The Macroeconomic Effects of Deficit Spending: A Review OLLOWING the Keyrnesiari Revolution in mac- r-oecomnomics, a iarge number- of economists argued that deficit spending was required to achieve two of the stated national econonnic objectives: frill ennployment and a high r-ate of econonnic gr’owtln.’ Societywas thotnght to bemnefit fr-ornn deficit spend- iing because of tine reduction in lost output arnd because tine econornw would achieve a higher n-ate of gr-owth. ‘This view of deficit spendirng Inas been dial— iernged inncr’easirngiy over- tine veal’s, A sizable nnur’n— her of economists now believe that deficit spend- ing has little effect oin emnnplovnnemnt and output, especially in tine iorng r-un, arnd tinat it prinniam-ftv results in a i’edistr-ihution of output, eimlner witininn the pr’ivate sector- or- as a ti-arnsfer of resour’ces fr-ornn the pr-ivate to tine public sector’.’ Support for tlnis viewpoint has produced a grownmng concern about tine potentiaHv har-rnfui effects of deficit spending arnd tine size of tine public debt The existence and magnitude of the benefits fn-onin deficit spemnding have important innplicatiotns for tine public policy debate. Pr’esumably, the deci- sion to incur- deficits is affected by the public’s belief about whether’ deficits provide benefits to some individuals at little or- no cost to other’s, or’ winetiner they mer-elv redistribute income. Fience, a cenitral issue inn the debate over deficit spending is wlnether-, and to what degree, it can he used to produce net benefits for society as a whoie. The purpose of tinis paper- is to examinne sornie of tine arguments amnd evidemnce on wlnethe

There are no comments yet on this publication. Be the first to share your thoughts.