The authors analyze whether it makes sense to treat public investment spending differently from other government spending when applying the deficit constraints mandated within the single European currency area. Given the low rates of population growth, mobility, and mortality in European...

Examining industrialized countries, the authors find that large deficits are not associated with higher inflation contemporaneously, nor are they associated with the emergence of higher inflation in subsequent years. This finding suggests that countries that can afford large deficits have built...