Which Deficit? Comparing Thirteen Measures of the U.S. Fiscal Deficit on Theoretical and Empirical Grounds
AbstractFor some time economists have acknowledged that reported budgetary data do not necessarily reflect actual economic activity. Agreement has not been reached, however, on how budget figures should be adjusted to reflect such activity accurately. In this working paper, Resident Scholar Neil H. Buchanan examines 13 alternative measures of the budget deficit in order to determine which, if any, are theoretically or statistically sounder than existing measures. He evaluates them in terms of their theoretical value, that is, their ability to capture benefits (such as higher levels of employment (subject to NAIRU constraints), higher rates of growth, and higher levels of private investment), and costs (higher rates of inflation and lower levels of private investment, consumption, and net exports) to the economy. He also tests whether the new definitions provide empirically more robust estimates than existing measures. Different measures can provide somewhat different gauges of the total macroeconomic effects of deficit spending. For example, since spending by any level of government has macroeconomic effects, it can be argued that all spending, not only that of the federal government, should be included in the derivation of the "government deficit." Some assert that the so-called inflation tax (the effects of inflation on changes in interest rate payments) should be subtracted from the deficit since inflation results in a decrease in the real amount of debt outstanding. An argument also can be made that changes in spending and revenues resulting from a change in the business cycle should be smoothed over the course of the business cycle. Another adjustment would separate government expenditures for capital items from expenditures for consumption items because capital items yield long-term returns. In addition, however, government's long-term liabilities in the form of, for example, unfunded loan and pension guarantees, should be accounted for in the definition of a capital budget.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by EconWPA in its series Macroeconomics with number 9805026.
Length: 83 pages
Date of creation: 23 Jun 1998
Date of revision:
Note: Type of Document - Acrobat PDF; prepared on IBM PC; to print on PostScript; pages: 83; figures: included
Contact details of provider:
Web page: http://22.214.171.124
Find related papers by JEL classification:
- E - Macroeconomics and Monetary Economics
This paper has been announced in the following NEP Reports:
You can help add them by filling out this form.
reading list or among the top items on IDEAS.Access and download statisticsgeneral information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (EconWPA).
If references are entirely missing, you can add them using this form.