U.S. Budget Deficits and the European Economies: Resolving the Political Economy Puzzle
This paper, prepared for the annual meetings of the American Economic Association, discusses how the increases in the U.S. budget deficits since 1980 have affected the economies of Western Europe. The analysis emphasizes that U.S. deficits have not only affected these economies directly but have also induced them to adopt more restrictive monetary and fiscal policies than they would otherwise have chosen. This induced shift in domestic policies is the primary reason why European governments have pressed for a reduction in the U.S. budget deficits despite the favorable impact of those deficits on European trade surpluses.
Feldstein, Martin "U.S. Budget Deficits and the European Economies: Resolving the Political Economy Puzzle." American Economic Review, Vol. 76, No. 2, (May 1986), pp. 342-346. citation courtesy of
"the Export Performance of U.S. and Swedish Multinationals" Review of Income and wealth, series 35, vol. 3, Sept. 1989.