Jason Furman on Growth and the Government Deficit

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How can we reduce the government budget deficit? A number of economists have proposed policies to increase U.S. economic growth using government programs. In theory, higher growth means more tax revenue, a higher GDP, and lower deficits.  But there are other factors. TL;DR version: higher growth will have a minimal impact on the deficit.  Jason Furman has put together a simple, straightforward model of the relationship between growth, interest rates, the deficit, the debt, and GDP.  Read the first three paragraphs carefully to better understand the model.  (If you’re an economist, feel free to skip that suggestion.)

Growth Deficit Equation Jason Furman on Growth and the Government Deficit

Here’s Jason Furman on growth and the government deficit. (I believe the last paragraph should read “But even large growth policies are like a relatively small tax or spending policy when it comes to their impact on the trajectory of debt relative to GDP.”)



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About Tony Lima

Retired after teaching economics at California State Univ., East Bay (Hayward, CA). Ph.D., economics, Stanford. Also taught MBA finance at the California University of Management and Technology. Occasionally take on a consulting project if it's interesting. Other interests include wine and technology.