Working papers, Department of Economics, WU (Wirtschaftsuniversität Wien)
Reasons for the U.S. growth period in the nineties: non-keynesian effects, asset wealth and productivity
() and Martin Zagler
Abstract: The 1990s were an extraordinary period for the US economy,
both because of declining budget deficits and beginning budget surpluses,
as well as for high rates of economic growth. This paper confronts the
conventional wisdom that high growth rates caused budget improvements, and
claims that budget consolidations also contributed to foster economic
growth. We propose the existence of a non-Keynesian effect, where fiscal
policy runs in contrast to Keynesian theory and a fiscal consolidation can
foster economic growth. We present empirical evidence that an increase in
tax revenues reduces the distortionary bias of future taxation and
therefore leads to an increase in consumer confidence and consumption. Two
supply side effects were proposed. A reduction in transfers reduced labor
market pressures and government savings provided liquidity for financial
markets which both increased incentives to invest.
JEL-Codes: H30; H31; E60; E62; (follow links to similar papers)
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