Fiscal Policy and Economic Growth

Research Report

Fiscal Policy and Economic Growth

A Simple Framework
February 3, 2003

Abstract

The effect of fiscal policy on economic growth is a controversial and long-standing topic in economic theory, empirical research, and economic policymaking. It is at the heart of the policy debate surrounding the sharp increases in official federal budget surpluses in the 1990s, the equally sharp decline in the fiscal outlook since January 2001, and the increasingly imminent retirement of the baby boom generation. In this article, we provide a brief overview of the macroeconomic relations between budget surpluses and deficits, the tax and spending policies that influence those budget outcomes, and economic growth.

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