Economic Report of the President 1994 - The American Presidency ...

ments with the Internal Revenue Service (IRS). The Council estimatesthat these two factors added 0.2 percent to the level of GDPin the second quarter of 1992 and 0.4 percent in the third andfourth quarters. These gains were temporary, however. GDPgrowth was 0.3 percent lower in the first quarter of 1993 and 0.4percent lower in the second quarter than it would have been withoutthese fiscal factors. There were also effects on the timing ofconsumer spending arising from the expectation and misperceptionof 1993 tax changes.Defense SpendingDuring the second half of 1992, defense spending temporarily increasedwell above its trend. Part of the change was in purchasesof durables. The other portion was in "other services," whose increasewas in part due to expenditures to close military bases.Chart 2-7 shows the temporary burst of spending relative to abaseline which is estimated as the trend in defense spending fromthe third quarter of 1989 to the third quarter of 1993, excludingthe quarters of the Persian Gulf crisis and the last two quartersof 1992.Chart 2-7 Defense Spending: Actual Versus BaselineAlthough defense spending is falling in the post-Cold War era, two recent periods ofrelatively high defense spending stand out.Billions of 1987 dollarsouu290Persian Gulf War280270Actual>Baseline\\^x ^ ^ \ Temporary Defense Spending260-* \ / A250-240-1 111 1 11989 1990 1991 1992 1993Note: Baseline is trend in spending from 1989:111 to 1993:1V, excluding 1990.IV-1991:111 and 1992:III-IV.Sources: Council of Economic Advisers and Department of Commerce.72