Journal of Economic Perspectives
ISSN 0895-3309 (Print) | ISSN 1944-7965 (Online)
The Ricardian Approach to Budget Deficits
Journal of Economic Perspectives
(pp. 37–54)
(Complimentary)
Abstract
In recent years there has been a lot of discussion about U.S. budget deficits. Many economists and other observers have viewed these deficits as harmful to the U.S. and world economies. The supposed harmful effects include high real interest rates, low saving, low rates of economic growth, large current-account deficits in the United States and other countries with large budget deficits, and either a high or low dollar (depending apparently on the time period). This crisis scenario has been hard to maintain along with the robust performance of the U.S. economy since late 1982. Persistent budget deficits have increased economists' interest in theories and evidence about fiscal policy. At the same time, the conflict between standard predictions and actual outcomes in the U.S. economy has, I think, increased economists' willingness to consider approaches that depart from the standard paradigm. In this paper, I will focus on the alternative theory that is associated with the name of David Ricardo.Citation
Barro, Robert J. 1989. "The Ricardian Approach to Budget Deficits." Journal of Economic Perspectives 3 (2): 37–54. DOI: 10.1257/jep.3.2.37JEL Classification
- E12 General Aggregative Models: Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
- E21 Macroeconomics: Consumption; Saving; Wealth
- E24 Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
- F32 Current Account Adjustment; Short-term Capital Movements
- H22 Taxation and Subsidies: Incidence
- H24 Personal Income and Other Nonbusiness Taxes and Subsidies; includes inheritance and gift taxes
- H62 National Deficit; Surplus