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Quantifying the Current U.S. Fiscal Imbalance

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  • Alan J. Auerbach

Abstract

This paper considers the magnitude of the U.S. fiscal imbalance, as measured by the permanent changes needed to stabilize the national debt as a share of GDP. At present, even after recent improvements in forecast deficits, this imbalance stands at 5.3 percent of GDP -- several times the magnitude of the current official deficit. The imbalance is due primarily to the growth of Medicare, Medicaid, and Social Security. Addressing an imbalance of this size will require significant policy changes. Even if current projected reductions in other government spending occur, and policies are adopted to eliminate the estimated OASDI imbalance and balance the federal budget in 2002, an additional and immediate reduction in the primary deficit of 2.7 percent of GDP will be required to establish a feasible fiscal policy. Waiting to adopt policy changes will increase the size of the required annual primary deficit reduction.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 6119.

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Date of creation: Aug 1997
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Publication status: published as National Tax Journal (September 1997): 387-398.
Handle: RePEc:nbr:nberwo:6119

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  1. Ronald Lee & Shripad Tuljapurkar, 1998. "Stochastic Forecasts for Social Security," NBER Chapters, in: Frontiers in the Economics of Aging, pages 393-428 National Bureau of Economic Research, Inc.
  2. Alan J. Auerbach & Jagadeesh Gokhale & Laurence J. Kotlikoff, 1994. "Generational Accounting: A Meaningful Way to Evaluate Fiscal Policy," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 8(1), pages 73-94, Winter.
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Cited by:
  1. Bonin, Holger & Patxot, Concepció & Souto, Guadalupe, 2013. "Cyclically neutral generational accounting," ZEW Discussion Papers 13-099, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  2. Gemma Abío & Eduard Berenguer & Holger Bonin & Joan Gil & Concepció Patxot, 2003. "Is the deficit under control? A generational accounting perspective on fiscal policy and labour market trends in Spain," Investigaciones Economicas, Fundación SEPI, Fundación SEPI, vol. 27(2), pages 309-341, May.
  3. Ananda Jayawickrama & Tilak Abeysinghe, 2006. "Sustainability of Fiscal Deficits : The US Experience 1929-2004," Governance Working Papers 21924, East Asian Bureau of Economic Research.
  4. Alberto Alesina, 2000. "The Political Economy of the Budget Surplus in the U.S," NBER Working Papers 7496, National Bureau of Economic Research, Inc.
  5. Gemma Abio Roig & Joan Gil Trasfi & Concepcion Patxot Cardoner, 2005. "La Ley de Estabilidad Presupuestaria en el largo plazo: efecto del ciclo demografico," Working Papers in Economics 126, Universitat de Barcelona. Espai de Recerca en Economia.
  6. John Stephenson & Grant Scobie, 2002. "The Economics of Population Ageing," Treasury Working Paper Series 02/04, New Zealand Treasury.
  7. Muriel Bouchet, 2003. "The sustainability of the private sector pension system from a long-term perspective: the case of Luxembourg," BCL working papers 6, Central Bank of Luxembourg.
  8. Concepció Patxot & Elisenda Rentería & Miguel Romero & Guadalupe Souto, 2012. "Measuring the balance of government intervention on forward and backward family transfers using NTA estimates: the modified Lee arrows," International Tax and Public Finance, Springer, Springer, vol. 19(3), pages 442-461, June.
  9. Auerbach, Alan J., 2001. "US fiscal policy in a (brief?) era of surpluses," Japan and the World Economy, Elsevier, Elsevier, vol. 13(4), pages 371-386, December.
  10. Alberto Alesina, 2000. "The Political Economy of the Budget Surplus in the United States," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 14(3), pages 3-19, Summer.
  11. Auerbach, Alan J. & Gale, William G. & Orszag, Peter R., 2006. "New Estimates of the Budget Outlook: Plus Ca Change, Plus C'est la Meme Chose," Berkeley Olin Program in Law & Economics, Working Paper Series, Berkeley Olin Program in Law & Economics qt4650s8nz, Berkeley Olin Program in Law & Economics.
  12. Gemma Abío & Eduard Berenguer & Holger Bonin & Joan Gil & Concepció Patxot, . "Is the Deficit under Control? A Generational Accounting Perspective on Fiscal Policy and Labour Market Trends in Spain," Working Papers 2001-06, FEDEA.
  13. Tilak Abeysinghe & Ananda Jayawickrama, 2013. "A segmented trend model to assess fiscal sustainability: The US experience 1929–2009," Empirical Economics, Springer, Springer, vol. 44(3), pages 1129-1141, June.

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