The 'CUB' Budget as a Measure of Fiscal Policy. Quarterly Economic Commentary Special Article, January 1976

Tussing, A. Dale and Durkan, J. and Kirwan, F. (1976) The 'CUB' Budget as a Measure of Fiscal Policy. Quarterly Economic Commentary Special Article, January 1976. [Working Paper]

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Abstract

In a recession or depression, as at present, government budgets tend to be much less expansionary in their effects on the economy than one might infer from the sizes of their overall deficits. In other words, those who try to gauge the effect of the budget on demand in the economy by reference .to the size of the deficit in the overall budget are likely, in a recession, to be wrong. When government budget deficits rise, the usual interpretation is that the budget is more expansionary than theretofore in its influence on the economy, and when budget deficits fall (or surpluses grow), the usual interpretation is that the influence is less expansionary (or more contractionary). But the fact is that increased deficits are not necessarily more expansionary, nor are reduced deficits necessarily more contractionary, even apart from such matters as the types of taxes used, the mix of expenditures, the ways in which deficits are financed, and movements in the supply of money. The sizes of budget deficits and surpluses are influenced not only by the direction and strength of fiscal policy, but by short-term movements of the economy itself.

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