Introduction

A great deal of discussion of macroeconomic policy in most countries recently has been expressed in terms of changes in the level of the budget deficit. Attention in the USA has been focused on the alleged need to bring down the budget deficit, and even to ‘balance the budget’. One of the principal criteria for entry into the proposed European Monetary Union is that a member should have a budget deficit no higher than a certain target ratio to its GDP, and keep it there, as well as holding down the existing level of its national debt to a certain ratio to GDP. In Britain, discussions of fiscal policy are generally centred around the target of a certain figure for the Public Sector Borrowing Requirement or ‘PSBR’. More recently attention seems to have been given primarily to the level of the PSBR in excess of government investment. (Less commonly, in order to avoid the erroneous though widespread practice of taking the sale of public sector assets as a budget credit, the term Public Sector Financing Requirement or ‘PSFR’ is sometimes used in Britain.)