Argentina has had a sad economic history in recent decades. As of 1989 real per-capita GDP stays at a level similar to that of the early 1960's. This means a quarter of a century without growth at a time when the rest of the world has seen one of the most glowing periods in terms of economic achievements. Per-capita GDP reached a historical level in 1974 and has never again been able to surpass this level in spite of reaching it again in 1977 and 1979. Since 1980 GDP per capita starts a steep decline that results in an accumulated fall of 23.5% in the ten year period 1979-88. During the same decade, the price level increased by a factor of 3.36 million, equivalent to an annual compound rate of inflation of 349%.

It is not our objective to explain the reasons for the economic stagnation of Argentina but to concentrate on the role that public sector behavior may have had in that process. In particular, we shall be concerned with the role of government spending, taxation and deficit financing on the rest of the economy. We shall not be concerned with the effects of government regulation, a topic that deserves a volume on itself.