Budget Deficits and Fiscal Policies

Melbourne Institute Policy Brief No. 02/15

Date: April 2015


Guay Lim
Viet Hoang Nguyen
Sarantis Tsiaplias


We highlight the strong relationship of taxes and expenditures with the business cycle and draw attention to periods when changes in the budget deficit have been predominantly driven by discretionary and/or unexpected events. Although the task of turning a deficit into a surplus is challenging, we consider it short sighted to view the fiscal policy challenge as simply one of reducing the size of the deficit in the short term — decisions to cut particular types of expenditure or raise particular types of taxes have serious long-term social and economic implications.

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