Towards A Behavioural-Theoretic Analysis of Budget Deficits

Abstract

For quite some time now public sectors in Western countries have been running budget deficits (cf. Saunders and Klau (1985)). The economic literature on these budget deficits and their financing is extensive. It is discussed whether government debt represents a burden or net wealth, and whether the so-called Ricardian equivalence theorem between debt and tax financing holds; the macroeconomic analysis of the consequences of budget deficits has been given a new impulse through the explicit modelling of the government budget restraint since Christ (1967); all kinds of budget norms have been presented and defended. Rather rare, however, are the studies in which a positive analysis of the economic and political causes of the occurrence of budget deficits is given²⁾. We will briefly survey the latter approaches.