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Budget windows, sunsets, and fiscal control

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  • Auerbach, Alan J.

Abstract

Governments around the world have struggled to find the right method of controlling public spending and budget deficits. In recent years, the United States has evaluated policy changes using a ten-year budget window. The use of a multi-year window is intended to capture the future effects of policies, the notion being that a budget window that is too short permits the shifting of costs beyond the window's endpoint. But a budget window that is too long includes future years for which current legislation is essentially meaningless, and gives credit to fiscal burdens shifted to those whom the budget rules are supposed to protect. This suggests that there may be an "optimal"budget window, and seeking to understand its properties is one of this paper's main objectives. Another objective is to understand a phenomenon that has grown in importance in U.S. legislation -- the "sunset." This paper argues that, with an appropriately designed budget window, the incentive to use sunsets to avoid budget restrictions will evaporate, so that temporary provisions can be taken at face value. The analysis also has implications for how to account for long-term term budget commitments.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Public Economics.

Volume (Year): 90 (2006)
Issue (Month): 1-2 (January)
Pages: 87-100

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Handle: RePEc:eee:pubeco:v:90:y:2006:i:1-2:p:87-100

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Web page: http://www.elsevier.com/locate/inca/505578

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References

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  1. Jagadeesh Gokhale & Kent Smetters, 2003. "Fiscal and generational imbalances: new budget measures for new budget priorities," Policy Discussion Papers, Federal Reserve Bank of Cleveland, issue Dec.
  2. Tabellini, Guido & Alesina, Alberto, 1990. "A Positive Theory of Fiscal Deficits and Government Debt," Scholarly Articles 3612769, Harvard University Department of Economics.
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Cited by:
  1. Grembi, Veronica & Nannicini, Tommaso & Troiano, Ugo, 2012. "Policy Responses to Fiscal Restraints: A Difference-in-Discontinuities Design," IZA Discussion Papers 6952, Institute for the Study of Labor (IZA).
  2. Christopher L. House & Matthew D. Shapiro, 2004. "Phased-In Tax Cuts and Economic Activity," Macroeconomics, EconWPA 0404009, EconWPA.
  3. Roel M.W.J. Beetsma & Frederick van der Ploeg, 2007. "Partisan Public Investment and Debt: The Case for Fiscal Restrictions," Economics Working Papers, European University Institute ECO2007/37, European University Institute.
  4. Frank Fagan, 2013. "After the sunset: the residual effect of temporary legislation," European Journal of Law and Economics, Springer, Springer, vol. 36(1), pages 209-226, August.
  5. Beetsma, Roel & van der Ploeg, Frederick, 2007. "The Political Economy of Public Investment," CEPR Discussion Papers, C.E.P.R. Discussion Papers 6090, C.E.P.R. Discussion Papers.
  6. Vlaicu, Razvan & Verhoeven, Marijn & Grigoli, Francesco & Mills, Zachary, 2014. "Multiyear budgets and fiscal performance: Panel data evidence," Journal of Public Economics, Elsevier, Elsevier, vol. 111(C), pages 79-95.
  7. Toshihiro Ihori, 2014. "Commitment, Deficit Ceiling, and Fiscal Privilege," CIRJE F-Series, CIRJE, Faculty of Economics, University of Tokyo CIRJE-F-920, CIRJE, Faculty of Economics, University of Tokyo.
  8. Krause, Alan, 2009. "Optimal nonlinear income taxation with learning-by-doing," Journal of Public Economics, Elsevier, Elsevier, vol. 93(9-10), pages 1098-1110, October.
  9. Alan J. Auerbach, 2008. "Federal Budget Rules: The US Experience," NBER Working Papers 14288, National Bureau of Economic Research, Inc.
  10. Alan Auerbach, 2009. "US Experience with Federal Budget Rules," CESifo DICE Report, Ifo Institute for Economic Research at the University of Munich, Ifo Institute for Economic Research at the University of Munich, vol. 7(1), pages 41-48, 04.
  11. Fleck, Robert K. & Hanssen, F. Andrew, 2010. "Repeated adjustment of delegated powers and the history of eminent domain," International Review of Law and Economics, Elsevier, Elsevier, vol. 30(2), pages 99-112, June.

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