Wednesday, 30 March 2011

Balanced budget law

At the Adam Smith Institute blog James Paton is discussing a balanced budget law. He writes,
In 2009, the German constitution was amended to stop the federal and state governments from running budget deficits. The plan in Germany has been set over an eleven-year period. From 2016, governments won’t be able to run a deficit of more than 0.35% of GDP and from 2020 a deficit won’t be allowed to run at all. In America, 49 states have some form of a balanced budget provision (the exception is Vermont). In Oregon, the law forbids a state surplus of more than 2% of GDP. If there is one, anything above this threshold is refunded to taxpayers. The Federal government does not have a cap on its spending at all, but there have been various balanced budget proposed. This has been brought to Congress within the 1991-1992, 2001-2002 and 2005-2006 sessions. These have failed due to the difficulty to pass amendments, which needs a two-thirds majority in both houses in Congress and three-quarters of states ratifying it.
I'm guessing Ganesh Nana would not be too keen on the idea but I think many other economists would give the idea support. The size of budget deficits being run in many countries is of concern to economists. Recently in the U.S., for example, 10 former chairs of the President's Council of Economic Advisers wrote,
There are many issues on which we don’t agree. Yet we find ourselves in remarkable unanimity about the long-run federal budget deficit: It is a severe threat that calls for serious and prompt attention.
Given such concerns that the idea of a balanced budget law being discussed is understandable and not without merit.

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