MODELING UNITED-STATES BUDGETARY AND FISCAL-POLICY OUTCOMES - A DISAGGREGATED, SYSTEMWIDE PERSPECTIVE

This paper develops and estimates a model of U.S. federal budgetary outcomes that allows for considerable disaggregation across spending categories while providing, through cross-equation coefficient restrictions, substantially more statistical power than traditional approaches. We identify significant ''top-down'' fiscal policy effects on budgetary allocations primarily within the defense budget. Budgetary responses to macroeconomic conditions are generally countercyclical, although middle-class entitlements appear to react procyclically to inflation. Political control of Congress influences budgetary outcomes, with Democrats giving higher priority to domestic spending programs. The relative rate of public sector inflation affects spending growth, consistent with ''Baumol's disease.'' Public opinion affects defense and low-income entitlement spending. Defense spending has also been influenced by perceived Soviet threat as well as the level of armed conflict. There appear to be small election-year effects, although not of the sort predicted by political business cycle models. With a few exceptions, administration-specific impacts are relatively small and not systematically related to the party of the president.