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Journal of Economic Perspectives-Volume 14, Number 3--Summer 2000s 3-19 The Political Economy of the Budget Surplus in the United States Alberto Alesina n 1998, the federal government of the United States reached a budget surplus for the time in 30 Even havedescribed first years. though manycommentators this event as a rare and major success, what is remarkable is not that the U.S. government has reached a surplus, but that this result is perceived as so excep- tional. In fact, given the strong expansion of the U.S. economy in the last eight years, and the peace dividend due to the end of the cold war, nobody should be overly surprised at the much improved fiscal balance. The reason why a surplus for the federal government appears so unusual is that American citizens, like those of many other industrial countries, have become accustomed to large and persistent deficits from the mid-1970s onward. In fact, many European countries, which have had much lower growth than the United States and higher interest rates, are still struggling with this legacy of accumulated debts. While current budget surpluses should be viewed as relatively normal, the large budget deficits of the 1980s were exceptional. According to the tax-smoothing theory, the budget balance should be used as a buffer to allow tax rates to be approximately constant at the level that keeps the budget in intertemporal bal- ance.2 Thus, temporary deficits are expected to occur during recessions and 1 The peace dividend was proportionally mtuch lower for Etiropean cotuntries, since their defense spending