The myth of Rubinomics

Purpose – The purpose of this paper is to analyze and understand the Rubinomics hypothesis or the argument that “fiscal discipline” will bring private investment to a growth path as a result of a decrease in real interest rates, during the 1990s in the USA. Design/methodology/approach – The paper relies on a range of previously published works and macroeconomic data to test the Rubinomics hypothesis. Findings – The paper concludes based on data from the experience of the US economy during the 1990s that the evidence does not validate the arguments of Rubinomics. Originality/value – The “crowding-out” debate is an important controversy in macroeconomics. By shedding light over this controversial issue, this paper shows that the US experience during the so-called roaring 1990s, a period of extraordinary “fiscal discipline,” did not follow the classical crowding-out hypothesis.