Of Budget Deficits and Macroeconomic Policy (1996)

The amount of attention given to reducing, or at least holding down, the government’s budget deficit (on some definition or other) in recent years has been at the expense of a rational approach to macroeconomic policy. This chapter outlines the reasons why that approach may have damaging macroeconomic effects. It draws attention to ways in which the costs and benefits of a reduction or increase in government borrowing (‘the budget deficit’) should be considered only in the context of the macroeconomic (and other) effects of the particular combinations of government outlays and revenue with which any change in the budget deficit is brought about.