Effect of Deficits on Prices of Financial Assets: Theory and Evidence

摘要

The current international concern among policymakers with present and projected levels of budget deficits is of relatively recent origin. Following the first oil crisis there was a general increase in budget deficits, but no great anxiety about their economic effects was evident initially. However, in 1975, as the industrial economies were emerging from the world-wide slump, the term 'crowding out' gained popularity in the financial press. The celebrity of this term was a gauge of heightened public uneasiness about the ill effects that growing budget deficits might have on economic performance. In response to these concerns, beginning about 1976, budget policy was directed toward bringing government deficits relative to GNP down to pre-1973 levels.