July 12, 2010

Controlling Federal Spending: Using Past Budgets as Guides for Spending Restraint

Research Summary
  • John Garen

    Gatton Endowed Professor of Economics, University of Kentucky
Key materials
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Americans are starting to understand that the rapid rise in federal spending and the associated increase in federal deficits is a matter of great concern. As the federal debt amasses, credit markets are expected to be increasingly wary of U.S. Treasury securities, with the possibility of debt downgrades and the associated unwelcome events. It is also well recognized that there are limits to the effectiveness of raising taxes to close deficits. Higher levels of taxation generate incentives that lead to reductions in economic activity and lower overall tax revenue. To avoid these undesired outcomes, federal spending should be addressed as the means for deficit reduction by using past budgets to help forecast for FY 2012.