MACROECONOMIC EFFECTS OF BUDGET DEFICITS - FURTHER INTERNATIONAL EVIDENCE

This paper investigates the effects of budget deficits on money growth , inflation, investment and real output growth using annual data from a sample of 32 countries. The findings can be summarized as follows: ( i) deficits are generally not monetized and, therefore, they do not pr oduce inflation via monetary expansions; (ii) deficits are not inflati onary even through their (alleged) aggregate demand effects; (iii) def icits are negatively correlated with the rate of growth of real output , but this may just reflect their countercyclical nature; and (iv) inc reased deficits do appear to retard investment usually after one or tw o years.