Postwar Deficit Spending in the United States

Abstract

This article analyzes the relative importance of 5 of the primary influences suggested in the literature on the size of the U.S. federal deficit during the postwar period: the state of the economy, the identity of the political party in power, Roubini and Sachs's "strength-of-government" hypothesis, the "irresponsible Congress/responsible president" hypothesis, and the "gridlock" hypothesis. We find that the state of economy has an important influence on the deficit. Controlling for the economy, however, we find no support for any of the other 4 hypotheses. In sharp contrast to the latter 3 of these hypotheses, when the president has strong political and popular support, the deficit appears to increase by more than would have been otherwise. These results call into question much of the "conventional wisdom" on deficit spending in the United States and highlight the distinctive demands of the cold war on U.S. defense outlays and fiscal policy outcomes.