Journal Article

The political economy of balanced budget amendments

Abstract: A balanced budget amendment is a constitutional rule requiring that the government collect enough revenue to finance its expenditures every year. The motivation for introducing such a rule is the desire to restrict deficit spending and limit increases in government debt. However, policymakers strongly disagree about the rule?s coverage and provisions. In particular, they disagree on how to define the terms revenue and expenditures and under which conditions exceptions to the rule should be allowed. In this article, Marina Azzimonti provides an overview of the arguments raised by proponents and opponents to the balanced budget amendment, emphasizing its economic consequences. She then describes recent findings in the academic literature that analyze the impact of similar rules at the state level. Finally, she summarizes theoretical findings that aim to compute the impact of a balanced budget rule on economic and policy variables, together with its effects on consumers? welfare.

Keywords: Debt - United States; Deficit financing; Budget - United States;

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Bibliographic Information

Provider: Federal Reserve Bank of Philadelphia

Part of Series: Business Review

Publication Date: 2013

Issue: Q1

Pages: 11-20