Government Deficit Financing and Stabilization

The US federal deficit has, over the years, remained a subject of widespread concern and controversy. Diverse views continue to be expressed on such questions as whether the deficit matters, whether it is the inflation-adjusted deficit that matters, whether bond-financed deficits are inflationary, and whether it is only deficits that are financed by money creation which are inflationary. Against this background, few would disagree with Boskin (1982) that “progress in improving our understanding of the role of the budget deficit in economic behavior and performance… is an urgent research priority”.