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Economic Commentary

Why Do Deficits Matter?

The current budget process is likely to produce large budget deficits in fiscal year 1982 and thereafter. The budget deficit is the residual from the taxing and spending policies of the federal government. Our founding fathers gave the government the power to borrow money in article 1, section 8, of the U.S. Constitution. Without such authority the government would be forced to collect taxes priorto making expenditures. Economic theory and empirical evidence suggest that it is in the interest of the people and in the self-interest of political leaders to plan tax collections independently of expenditures. In such a budget process there is obviously room for temporary deficits.

The views authors express in Economic Commentary are theirs and not necessarily those of the Federal Reserve Bank of Cleveland or the Board of Governors of the Federal Reserve System. The series editor is Tasia Hane. This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License. This paper and its data are subject to revision; please visit for updates.

Suggested Citation

Gavin, William T. 1981. “Why Do Deficits Matter?” Federal Reserve Bank of Cleveland, Economic Commentary 7/13/1981.