things started to change in the1990s,when the U.S. federal government got its fiscal house in order . the first president Bush and president clinton both signed tax increases,while congress kept a lid on spending . in addition to these policy changes , rapid productivity growth in the late 1990s raised incomes and,thus,further increased tax revenue . these developments moved the U.S. federal budget from deficit to surplus,which in turn caused national saving to rise.
In contrast to what our model predicts , the increase in national saving did not coincide with a shrinking trade deficit , because domestic investment rose at the same time. The likely explanation is that the boom in information technology caused an expansionary shift in the U.S. investment function. Even though fiscal policy was pushing the trade deficit toward surplus , the investment boom was an even stronger force pushing the trade balance toward deficit.
In the early 2000s, fiscal policy once again put downward pressure on national saving . With the second President Bush in the White House , tax cuts were signed into law in 2001 and 2003 , while the war on terror led to substantial increases in government spending . The federal government was again running budget deficit . National saving fell to historic lows, and the trade deficit reached historic highs.