off the charts
POLICY INSIGHT
BEYOND THE NUMBERS

You are here

Senate Balanced Budget Amendment Goes Far Beyond European Budget Rules

December 6, 2011 at 4:37 PM

The Senate will vote this month on a constitutional balanced budget amendment that would require a balanced federal budget every year, regardless of the state of the economy, unless two-thirds of the House and Senate overrode that requirement.  While some proponents point to balanced budget requirements in some European countries as evidence that the United States should adopt one, too, no European country has adopted or is seriously considering anything like the proposal before the Senate, as we explain in a new report.

  • No European country requires a balanced budget in every single year.  For example, some countries allow the government to run deficits during recessions in order to dampen their impact.

    The highly regarded private forecasting firm Macroeconomic Advisers has warned that requiring a balanced budget every year would make recessions “deeper and longer.”  If a balanced budget amendment were in place during this recession, “the effect on the economy would be catastrophic,” the firm concluded.

  • Some countries require the operating budget to be balanced but allow borrowing for capital expenditures such as infrastructure improvements, which can boost long-term economic growth.
  • Some countries’ balanced budget requirements are set in statute, not in their constitution, or simply reflect a commitment by political parties.  Thus, lawmakers can override them by a simple majority vote if circumstances warrant.

In fact, an International Monetary Fund survey of 81 countries — including all member countries of the Organisation for Economic Co-operation and Development (OECD) — found that, in 2008, not one had a constitutional balanced budget requirement that would require balance of the entire budget in every year, with no adjustment for economic cycles or capital investment.


SHARE