Budget Deficits and Economic Performance

Persistent and high budget deficits are one of the major problems of many advanced economies. However, some of the remedies to redress this situation create as many problems as they solve. A fixation with "balancing the budget" treats government outlays and tax revenues merely as accounting identities, devoid of economic content. In reality, the ramifications of budgetary changes on interest and exchange rates, the international trade balance and global flows are enormous. In "Budget Deficits and Economic Performance", the authors focus on the wider economic impact of budgetary reform. They combine historical with contemporary material. Institutions, and central banks, in particular have a critical role. This has particular significance for Europe as it has important implications for European Monetary Union and the proposed European System of Central Banks. The authors also address the international transmission effects of US macroeconomic policies on European economies - specifically those of Britain, France, Germany and Italy. In conclusion, they present a theoretical examination of optimal bank policy balanced with institutional pressures in conjunction with the political restructure.