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On the General Relativity of Fiscal Language

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Author Info

  • Jerry Green

    (Harvard University, Department of Economics and NBER)

  • Laurence J. Kotlikoff

    (Boston University, Department of Economics and NBER)

Abstract

A century ago, everyone thought time and distance were well defined physical concepts. But neither proved absolute. Instead, measures/reports of time and distance were found to depend on one’s reference point, specifically one’s direction and speed of travel, making our apparent physical reality, in Einstein’s words, “merely an illusion.” Like time and distance, standard fiscal measures, including deficits, taxes, and transfer payments, depend on one’s reference point/reporting procedure/language/labels. As such, they too represent numbers in search of concepts that provide the illusion of meaning where none exists. This paper, dedicated to our dear friend, David Bradford, provides a general proof that standard and routinely used fiscal measures, including the deficit, taxes, and transfer payments, are economically ill-defined. Instead these measures reflect the arbitrary labeling of underlying fiscal conditions. Analyses based on these and derivative measures, such as disposable income, private assets, and personal saving, represent exercises in linguistics, not economics.

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Bibliographic Info

Paper provided by Boston University - Department of Economics in its series Boston University - Department of Economics - Working Papers Series with number WP2006-036.

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Length: 17 pages
Date of creation: Jun 2006
Date of revision:
Handle: RePEc:bos:wpaper:wp2006-036

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References

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  1. Mirrlees, James A, 1971. "An Exploration in the Theory of Optimum Income Taxation," Review of Economic Studies, Wiley Blackwell, vol. 38(114), pages 175-208, April.
  2. Craig Burrnside, 2005. "Fiscal Sustainability in Theory and Practice : A Handbook," World Bank Publications, The World Bank, number 7495, January.
  3. Fumio Hayashi, 1985. "Tests for Liquidity Constraints: A Critical Survey," NBER Working Papers 1720, National Bureau of Economic Research, Inc.
  4. William G. Gale & Peter R. Orszag, 2004. "Budget Deficits, National Saving, and Interest Rates," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 35(2), pages 101-210.
  5. Robert B. Barsky & N. Gregory Mankiw & Stephen P. Zeldes, 1987. "Ricardian Consumers With Keynesian Propensities," NBER Working Papers 1400, National Bureau of Economic Research, Inc.
  6. Laurence J. Kotlikoff, 2001. "Generational Policy," NBER Working Papers 8163, National Bureau of Economic Research, Inc.
  7. David Hauner, 2006. "Fiscal Policy and Financial Development," IMF Working Papers 06/26, International Monetary Fund.
  8. Olivier J. Blanchard, 1984. "Debt, Deficits and Finite Horizons," NBER Working Papers 1389, National Bureau of Economic Research, Inc.
  9. Fischer, Stanley, 1980. "Dynamic inconsistency, cooperation and the benevolent dissembling government," Journal of Economic Dynamics and Control, Elsevier, vol. 2(1), pages 93-107, May.
  10. Eric M. Engen & R. Glenn Hubbard, 2004. "Federal Government Debt and Interest Rates," NBER Working Papers 10681, National Bureau of Economic Research, Inc.
  11. Barry P. Bosworth & Lisa Bell, 2005. "The Decline in Household Saving: What Can We Learn from Survey Data?," Working Papers, Center for Retirement Research at Boston College wp2005-15, Center for Retirement Research, revised Dec 2005.
  12. James Banks & Richard Blundell & James P. Smith, 2000. "Wealth inequality in the United States and Great Britain," IFS Working Papers W00/20, Institute for Fiscal Studies.
  13. Guido Tabellini, 1989. "The Politics of Intergenerational Redistribution," NBER Working Papers 3058, National Bureau of Economic Research, Inc.
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Cited by:
  1. Francisco J. Gomes & Laurence J. Kotlikoff & Luis M. Viceira, 2012. "The Excess Burden of Government Indecision," NBER Chapters, in: Tax Policy and the Economy, Volume 26, pages 125-163 National Bureau of Economic Research, Inc.
  2. Loretti I. Dobrescu & Laurence J. Kotlikoff & Alberto F. Motta, 2008. "Why Aren't Developed Countries Saving?," NBER Working Papers 14580, National Bureau of Economic Research, Inc.
  3. Alexander W. Blocker & Laurence J. Kotlikoff & Stephen A. Ross, 2008. "The True Cost of Social Security," NBER Working Papers 14427, National Bureau of Economic Research, Inc.
  4. Francois Gourio, 2007. "Putty-Clay Technology And Stock Market Volatility," Boston University - Department of Economics - Working Papers Series WP2007-005, Boston University - Department of Economics.

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