[Joseph_E._Stiglitz,_Carl_E._Walsh]_Economics(Bookos.org) (1)

International Perspective
DEFICITS IN OTHER COUNTRIES
When the United States ran a huge budget deficit during the
1980s, it was not alone. Most other major economies also witnessed
the same problems of deficits and growing government
debt. The figure shows estimates from the International
Monetary Fund (IMF) of the “structural” budget deficit as a
percentage of potential GDP for the United States, Japan, and
other major industrialized economies (Canada, France,
Germany, Italy, and the United Kingdom). The structural deficit
is that part of the government’s deficit that is left after it is
corrected for the type of business cycle factors we will be
studying in Part Seven. It corresponds to an estimate of the
budget if the economy were at full employment. As the figure
shows, only Japan among the major industrialized economies
experienced a budget surplus during the 1980s.
During the 1990s, the budget situation improved in the
United States and the other industrialized economies, again
with the exception of Japan. The 1990s, when most industrialized
economies enjoyed strong economic growth, are sometimes
described as “the lost decade” in Japan, as growth
stagnated after the rapid economic expansion of the previous
thirty years.
According to the IMF’s estimates, the United States had
achieved a balanced budget by 1998, and ran surpluses in 1999
and 2000. However, that budget situation changed dramatically
after 2001 as a result of tax cuts that reduced government
revenue and spending increases that were necessitated
by the war on terrorism. But unlike in the 1980s, the other
industrialized economies did not show a similar budget picture.
In fact, for 2004, the deficit as a percent of potential GDP
in the industrialized economies fell to under 2 percent, even
as it rose to exceed 4 percent in the United States.
2
SURPLUS (+) OR DEFICIT (–) AS A PERCENTAGE
OF POTENTIAL GDP
1
0
–1
–2
–3
–4
–5
–6
–7
Other
industrialized
countries
United
States
Japan
–8
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004
STRUCTURED SURPLUS AS A PERCENTAGE OF POTENTIAL GDP
SOURCE: IMF, World Economic Outlook (2004).
ADDING THE GOVERNMENT ∂ 555