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On the General Relativity of Fiscal Language

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  • Jerry Green
  • Laurence J. Kotlikoff

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%u2019s reference point, specifically one%u2019s direction and speed of travel, making our apparent physical reality, in Einstein%u2019s words, %u201Cmerely an illusion.%u201D Like time and distance, standard fiscal measures, including deficits, taxes, and transfer payments, depend on one%u2019s 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 National Bureau of Economic Research, Inc in its series NBER Working Papers with number 12344.

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Date of creation: Jun 2006
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Publication status: published as Auerbach, Alan J. and Daniel Shaviro (eds.) Key Issues in Public Finance – A Conference in Memory of David Bradford. Harvard University Press, 2009.
Handle: RePEc:nbr:nberwo:12344

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Cited by:
  1. 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.
  2. Laurence J. Kotlikoff & Francisco J. Gomes & Luis M. Viceira, 2010. "The Excess Burden of Government Indecision," Boston University - Department of Economics - Working Papers Series WP2010-014, Boston University - Department of Economics.
  3. Dobrescu, Loretti I. & Kotlikoff, Laurence J. & Motta, Alberto, 2012. "Why aren't developed countries saving?," European Economic Review, Elsevier, vol. 56(6), pages 1261-1275.
  4. 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.

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