What is the government budget balance?
The government budget balance is the difference between government revenues and spending. A positive balance is called a surplus; a negative balance is called a deficit.
Questions about Government budget balance
Short answers, pulled from the story.
What is the difference between a primary deficit and a total deficit?
The primary deficit is the gap between current government spending on goods and services and total tax revenue net of transfer payments, excluding interest on debt. The total deficit is the primary deficit plus interest payments on accumulated government debt.
What is the sectoral balances framework and who developed it?
The sectoral balances framework is a macroeconomic analysis approach developed by British economist Wynne Godley. It holds that the financial balances of the government sector, the private sector, and the foreign sector must sum to zero by accounting identity.
What caused the U.S. government deficit to peak between 2007 and 2009?
According to financial journalist Martin Wolf, the U.S. private sector shifted toward surplus by a cumulative 11.2 percent of GDP between the third quarter of 2007 and the second quarter of 2009, mechanically pushing the government balance into a larger deficit. Economist Paul Krugman attributed the private-sector shift to the end of the housing bubble, a sharp rise in household saving, and a collapse in business investment.
What is the Ricardian equivalence hypothesis?
The Ricardian equivalence hypothesis, named after English political economist and Member of Parliament David Ricardo, holds that households anticipating future taxes to repay current deficits will save now to offset those future obligations, neutralizing the stimulative effect of deficit spending. Empirical evidence on this hypothesis has been mixed.
What did Nobel laureate William Vickrey argue about government deficits?
William Vickrey, awarded the 1996 Nobel Memorial Prize in Economic Sciences, argued that the fear of deficits rests on a false analogy to household borrowing. He held that deficits add to private disposable income and purchasing power, stimulate private production, and are an economic necessity for a growing economy, not an economic sin.