Working Paper: NBER ID: w2144
Authors: James M. Poterba; Lawrence H. Summers
Abstract: This paper examines the recent United States experience with sustained budget deficits and concludes that the events of the last five years cast significant doubt on the proposition that the timing of taxes does not affect national savings. Rather than raising private saving, the recent deficits have if anything coincided with reduced saving and increased consumption. These findings suggest that realistic analysis of fiscal policies must recognize that consumers are liquidity constrained and/or myopic.
Keywords: budget deficits; national savings; Ricardian equivalence; consumer behavior
JEL Codes: E62; H63
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| recent U.S. budget deficits (H62) | decreased national savings (E21) |
| recent U.S. budget deficits (H62) | increased consumption (E21) |
| decreased national savings (E21) | increased consumption (E21) |
| liquidity constraints and myopic behavior (E41) | decreased national savings (E21) |
| anticipated tax cuts (H29) | increased consumption (E21) |