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On the General Relativity of Fiscal Language

Author

Listed:
  • Jerry Green

    (Harvard University, Department of Economics and NBER)

  • Laurence J. Kotlikoff

    (Boston University, Department of Economics and NBER)

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’s reference point, specifically one’s direction and speed of travel, making our apparent physical reality, in Einstein’s words, “merely an illusion.” Like time and distance, standard fiscal measures, including deficits, taxes, and transfer payments, depend on one’s 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.

Suggested Citation

  • Jerry Green & Laurence J. Kotlikoff, 2006. "On the General Relativity of Fiscal Language," Boston University - Department of Economics - Working Papers Series WP2006-036, Boston University - Department of Economics.
  • Handle: RePEc:bos:wpaper:wp2006-036
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    References listed on IDEAS

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    Cited by:

    1. Francisco J. Gomes & Laurence J. Kotlikoff & Luis M. Viceira, 2012. "The Excess Burden of Government Indecision," NBER Chapters,in: Tax Policy and the Economy, Volume 26, pages 125-163 National Bureau of Economic Research, Inc.
    2. Kazakova, Maria & Nesterova, Kristina, 2015. "Long-Term Forecast of the Main Parameters of the Budgetary System of Russia," Published Papers 2309, Russian Presidential Academy of National Economy and Public Administration.
    3. 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.
    4. 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.
    5. Gourio, François, 2011. "Putty-clay technology and stock market volatility," Journal of Monetary Economics, Elsevier, vol. 58(2), pages 117-131, March.
    6. Kazakova, Maria & Trunin, Pavel, 2015. "Long-Term Prognosis of Basic Demographic and Macroeconomic Indicators in Russia," Published Papers 2308, Russian Presidential Academy of National Economy and Public Administration.

    More about this item

    JEL classification:

    • H3 - Public Economics - - Fiscal Policies and Behavior of Economic Agents
    • H6 - Public Economics - - National Budget, Deficit, and Debt

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