Deficits, debt, and savings structure of OECD countries, with trends from 1965 to 1981

Much has been made of the possible impact of OECD macroeconomic policy on finicial flows available to developing countries. Specifically, the low domestic savings rates in many countries, together with governments' own demands for funds in credit markets, may have raised the overall cost of funds, "crowding-out" developing countries.

This paper reviews some of the evidence and concludes that the crowding-out hypothesis is not likley. While government budget deficits and borrowing have indeed been large in recent years, revenues and expenditures, when cyclically adjusted, come very close to being in balance. At non-recessionary levels of income, therefore, expenditure and revenue policies are approximately appropriate. Moreover, a close examination of expenditure categories and taxation policies does not reveal a "structural" imbalance, such that futures deficits, or growing deficits, are inevitable.