Taxing, Spending, and the Budget Process: The Role of Budget Regimes in the Intertemporal Budget Constraint

Two strains of literature have come out of the research addressing the size and duration of the United States federal government budget deficit. The first, focusing on budget control, deals with causality issues between expenditures and revenues. The second addresses the sustainability of the budget deficit. Here, one finds the rational expectations view of debt management. The empirical work in these two areas, however, offers many conflicting results. This paper addresses this confusion by searching for changes in the budget regime. For various reasons the Congressional Budget and Impoundment Control Act of 1974 is the principal point of focus of this empirical investigation. Indirectly, this paper offers a useful framework in which to understand the impact of changes in internal fiscal policies and budget rules that may be required of the countries participating in European economic union.