Number: RL31235
Title: The Economics of the Federal Budget Deficit
Authors: Brian W. Cashell, Government and Finance Division 
Abstract: The Congressional Budget Office (CBO) estimates that the federal budget deficit for FY2007 was $162.8 billion, a decline from the $248.2 billion deficit recorded in FY2006. The CBO baseline deficit projection for FY2008 is $219 billion. During the second half of the 1990s, deficit reduction was an important objective in the setting of overall budget policy. Between 1992 and 1998, a combination of budget policy and a booming economy entirely eliminated the deficit. But after four successive years of surpluses, outlays again exceeded revenues in 2002 and the budget has been in deficit since then. Strictly speaking, economics generally has little to say regarding whether a budget deficit is a good thing or not. Whether the budget is in deficit or surplus, and whether the budget deficit is growing or shrinking, have consequences for the performance of the economy, both in the short and long run. At the same time, the performance of the economy can have substantial effects on the budget as well.
Pages: 12
Date: January 25, 2008