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U.S. Deficits Since World War I

Robert J. Barro
The Scandinavian Journal of Economics
Vol. 88, No. 1, Growth and Distribution: Intergenerational Problems (Mar., 1986), pp. 195-222
Published by: Wiley on behalf of Scandinavian Journal of Economics
DOI: 10.2307/3440285
Stable URL: http://www.jstor.org/stable/3440285
Page Count: 28
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U.S. Deficits Since World War I
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Abstract

The tax-smoothing theory suggests that deficits would respond particularly to recession, temporarily high government spending, and anticipated inflation. My empirical estimates indicate that a relation of this type is reasonably stable in the U.S. since at least 1916. In particular, the statistical evidence does not support the idea that there has been a shift toward a fiscal policy that generates either more real public debt on average or that generates larger deficits in response to recessions. Further, the deficits for 1982-3 and popular projections (formed in 1984) for 1984-5 are consistent with the previous structure. The high values of these deficits reflect the customary response to substantial recession (interacting with big government) and to expected inflation.

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