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Will It Take a Crisis to Fix Fiscal Policy?

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  • Rudolph G Penner

Abstract

The U.S. national debt is on a trajectory to reach 185 percent of gross domestic product by 2035 unless there is a drastic change in federal fiscal policy. The main drivers of this situation are Social Security and health care programs, whose growth is amplified by an aging population and increasing medical costs, a dysfunctional Congress and an unwillingness to tackle the increasing burden of Social Security and the medical programs. The National Commission on Fiscal Responsibility and Reform and the Bipartisan Policy Center's Debt Reduction Task Force have produced thoughtful and sound plans for debt reduction but have produced little political traction. Reluctance to come to grips to the U.S. federal debt problem has increased the risks of a sovereign debt crisis, and the paper spells out potential responses, should one occur. Given the obstacles to a major overhaul of fiscal policy, it is difficult to see how it will be avoided.

Suggested Citation

  • Rudolph G Penner, 2011. "Will It Take a Crisis to Fix Fiscal Policy?," Business Economics, Palgrave Macmillan;National Association for Business Economics, vol. 46(2), pages 62-70, April.
  • Handle: RePEc:pal:buseco:v:46:y:2011:i:2:p:62-70
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    References listed on IDEAS

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    1. Carmen M. Reinhart & Kenneth S. Rogoff, 2009. "Varieties of Crises and Their Dates," Introductory Chapters,in: This Time Is Different: Eight Centuries of Financial Folly Princeton University Press.
    2. Congressional Budget Office, 2010. "The Long-Term Budget Outlook," Reports 21546, Congressional Budget Office.
    3. Reinhart, Karmen & Rogoff, Kenneth, 2009. ""This time is different": panorama of eight centuries of financial crises," Economic Policy, Russian Presidential Academy of National Economy and Public Administration, vol. 1, pages 77-114, March.
    4. repec:cbo:report:215461 is not listed on IDEAS
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    Cited by:

    1. Ray C. Fair, 2011. "What It Takes to Solve the U.S. Government Deficit Problem," Cowles Foundation Discussion Papers 1807, Cowles Foundation for Research in Economics, Yale University, revised May 2012.

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