The economic impact of alternative fiscal policies: a study
U.S. Government Printing Office, 1976 - Budget - 35 pages
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$10 billion 1958 dollars annual 1st simulation 2d 2d simulation actual budget alternative annual average balanced budget balancing the budget balancing the full-employment Base solution billions of 1958 budget balance budget policy causes change in implicit change in real CM CM CM CMCMCM CMCM coco cococo deficit deflator annual rate dollars annual average early effect employment budget examined expenditures Federal fiscal policy followed full-employment budget GNP annual rate half Housing starts millions I I I impact implicit price deflator improvement increase inflation Joint Economic Committee lower money supply oo oo output Percent change percentage point period price deflator annual produced Purchases Transfers quarter real GNP annual reduced shows significantly simulation 2d simulation spending substantial surplus TABLE third throughout tototo transfer payments Unemployment rate percent
Page 5 - At times the economic situation permits— even calls for— a budget deficit. There is one basic guideline for the budget, however, which we should never violate: Except in emergency conditions, expenditures must never be allowed to outrun the revenues that the tax system would produce at reasonably full employment. When the Federal Government's spending actions over an extended period push outlays sharply higher, increased tax rates or inflation inevitably follow.
Page 5 - ... helped move the economy toward full employment. The 1974 budget recognizes the Federal Government's continuing obligation to help create and maintain — through sound monetary and fiscal policies — the conditions in which the national economy will prosper and new job opportunities will be developed. As we look ahead, with the economy on the upswing, the full-employment budget principle — and common sense — prescribe a shift away from fiscal stimulus and toward smaller budget deficits....
Page 6 - I regret that my budget and tax proposals will mean bigger deficits temporarily, for I have always opposed deficits. We must recognize, however, that if economic recovery does not begin soon, the Treasury will lose anticipated receipts and incur even larger deficits in the future.
Page 5 - Is in the nature of self-fulfilling prophecy : By operating as if we were at full employment, we will help to bring about that full employment.
Page 6 - ... followed the full employment path, or indeed for indicating which of these directions its influence would take. Changes in the full employment surplus from period to period are much more important indicators of how much fiscal policy is moving toward contraction or expansion. The fact that the full employment budget has a surplus does not imply that the budget is not having an expansionary impact on the economy; the effects may be expansionary if the surplus is declining. Similarly a budget with...
Page 6 - The absolute level of the full employment surplus or deficit is of limited significance for indicating how much restraint or stimulus the budget would exert on the economy if it followed the full employment path, or indeed for indicating which of these directions its influence would take. Changes in the full employment surplus from period to period are much more important indicators of how much fiscal policy is moving toward contraction or expansion. The fact that the...
Page 5 - ... 14% higher, and the rate of increase in consumer prices declined. From 1971 through 1973, the full-employment budget principle permitted and called for substantial actual budget deficits. For this reason, some people have forgotten the crucial point that the fullemployment principle requires that deficits be reduced as the economy approaches full employment — and that it establishes the essential discipline of an upper limit on spending at all times.
Page 5 - Nation. • // adopts the idea of a "full employment budget." in which spending does not exceed the revenues the economy could generate under the existing tax system at a time of full employment.
Page 6 - The 1974 Economic Report of the President. Hearings before the Joint Economic Committee: Part 1.
Page 6 - ... as a measure of full employment in calculating these surpluses. These surpluses, following a small full-employment deficit in 1973, and rising somewhat from 1974 to 1975, are consistent with our objective of moderate restraint. In large part, the estimated increase in the full-employment surplus is the result of the high inflation rate experienced in calendar year 1973 and expected to continue for the first half of 1974.