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Using data from 1955 to 2005, the estimates presented imply a long-run equilibrium relation between U.S. federal government revenues and expenditures, but one that is consistent with a continuous expansion in the deficit. There is evidence of a structural break that led to deficit reduction and surpluses from 1996 to 2001, which coincides with several noteworthy economic and political outcomes including the only time when a Democratic administration and Republican Congress were in power simultaneously. The results support the view of a long-run deficit bias in federal budget decision-making. Absent behavior similar to that of the late 1990s, a change in budget rules may be needed to avoid the large deficits forecasted under current law. [ABSTRACT FROM AUTHOR]

Presents the results of a study on the causality between spending and taxes in the U.S. Possible budget scenarios for symmetric causality tests of the temporal relation between government revenues and expenditures; Importance of redistributive expenditures in long-term budget expansion; Factors to consider when applying causality estimation methods to the federal budget process.