The Federal Government Debt: Its Size and Economic Significance
Abstract
After several years of surpluses in the late 1990s, the federal budget has been in deficit since FY2001. Deficits represent the additional borrowing required in each year to bridge the gap between tax revenues and spending outlays. Each deficit adds to the already existing stock of outstanding federal debt. Some of those deficits may have seemed large at the time, but the budget deficit for FY2009 was unprecedented, in dollar terms, and the FY2010 deficit is also expected to be much larger than those of past years. The prospect of such rapid growth in the federal debt may seem alarming, and some might wonder how much the debt can grow before it poses significant economic risks. In a slack economy, federal borrowing and spending can stimulate growth in output in the short run. As the economy approaches full employment, federal government borrowing adds to total credit demand and tends to push up interest rates. Higher interest rates increase the cost of financing new investment in plant and equipment and thus may tend to reduce the stock of productive capital below what it might otherwise have been. That would tend to reduce the longrun rate of growth.
Document Details
- Document Type
- Technical Report
- Publication Date
- Feb 03, 2010
- Accession Number
- ADA514728
Entities
People
- Brian W. Cashell
Organizations
- Library of Congress