Borrowing and Political Equilibrium

Tax is not the only way to finance the government expenditures. Government borrowing has been a major mechanism to sustain the large outlays in the recent decades. In the 2009 financial crisis, the Obama administration has implemented a large stimulus. Retrospectively, however, it was likely to be too small to bring the U.S. economy back to the trajectory. In contrast, the spending during the 2020-21 pandemic has been significantly larger (both under Trump and Biden administrations).

 Using the budget projection in the CBO's report and the Figure, 12.1 of the textbook, contrast the magnitude of the budget deficit in 2009 and 2020/21 and describe your findings.

Figure 12.1 Federal Budget Balance, 1969-2018, with Projections to 2029 Surpluses Actual Projected Percentage of Gross Domestic Product -10 + 6 2 Average Deficit, 1969 to 2018 (-2.9%) Average Deficit, 2020 to 2029 (-4.7%) 1969 1974 1979 1984 1989 1994 Deficits 1999 Year Source: Congressional Budget Office. 2004 2009^ 2014 2019 2024 2029'