Policy Documents

Deficits, Interest Rates, and Taxes: Myths and Realities

Alan Reynolds –
June 29, 2004

In this Policy Analysis, the author argues that the federal government’s swing from budget surpluses to budget deficits has raised concerns about possible negative economic effects. Some economists have argued that deficits will raise interest rates, reduce economic growth, increase trade deficits, and possibly create a financial crisis.

This paper examines those claims and finds that they are not supported by the evidence.