BCG Henderson Institute

This research was published on May 24, 2024

Washington’s addiction to deficit spending — a rare bipartisan habit — is unlikely to change, no matter the electoral outcome in November. A deep conviction exists on both sides of the political divide that fiscal consolidation, whether achieved through less spending or higher taxes, reduces growth.

What this political consensus misses, however, are situations in which the classic trade-off is suspended — when smaller deficits can counterintuitively deliver more growth. Today’s macroeconomic environment is ripe for such an approach.