DO DEFICITS MATTER? by Daniel Shaviro


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 Shaviro (Law/New York Univ.) fails to deliver on his claim that ``for the first time in two centuries'' definite conclusions on the issues posed by budget deficits will be drawn. By conceptualizing budget deficits as ``tax lag''--the spending of money by government before it has been acquired through taxation--Shaviro directs us toward issues of generational burden-shifting, macroeconomic performance, and the size of government. Through reviews of classic and contemporary economic literature he explains and assesses the principal theories in prose that is dry and scholarly but accessible to the reader passionately interested in the subject. Disagreements are rife within this literature on such basic issues as how tax lag influences current spending decisions, interest rates, and the accumulation of savings. Shaviro is unusually honest about the difficulties that have left these conflicts unresolved: Empirical studies are generally unable to prove or disprove key theoretical assumptions, and there are too many indeterminate variables to confidently derive policy recommendations. Oddly enough, recognizing these limitations does not discourage him from plunging forward. Lacking an empirical basis for judgments, Shaviro states his personal belief that reducing the size of government is desirable and then uses this normative position as a point of reference for assessing policy proposals. In a survey of options, including the Balanced Budget Amendment, the line-item veto, decentralized government, and embracing gridlock, however, he finds little reason to believe that any of them will produce a downsized government. Given that the current prominence of tax lag leaves federal fiscal policy looking like a gigantic Ponzi scheme, this is a sobering analysis. Still, Shaviro's conclusion, that no clear policy implications can be derived from theory (which contradicts his own opening statement quoted above) and that the current budgetary situation is serious and requires action, is hardly groundbreaking.

Pub Date: May 1st, 1997
ISBN: 0-226-75112-0
Page count: 333pp
Publisher: Univ. of Chicago
Review Posted Online:
Kirkus Reviews Issue: March 15th, 1997