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When is fiscal adjustment an illusion?

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  • William Easterly

Abstract

Fiscal adjustment is an illusion when it lowers the budget deficit or public debt but leaves government net worth unchanged. Conventional measures of the budget deficit largely show the change in public sector debt. Ideally, the measured deficit would reflect the change in public sector net worth. Many people consider it impractical to try to measure public sector assets. My paper does not discuss what the deficit should measure, but instead proposes a positive and testable theory of how governments actually behave. Copyright Centre for Economic Policy Research, Centre for Economic Studies, Maison des Sciences de l'Homme 1999.

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  • William Easterly, 1999. "When is fiscal adjustment an illusion?," Economic Policy, CEPR;CES;MSH, vol. 14(28), pages 55-86, April.
  • Handle: RePEc:bla:ecpoli:v:14:y:1999:i:28:p:55-86
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