Quantifying the Current U.S. Fiscal Imbalance

Alan Auerbach

No 6119, NBER Working Papers from National Bureau of Economic Research, Inc

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.

JEL-codes: H6 (search for similar items in EconPapers)
Date: 1997-08
Note: PE
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Citations: View citations in EconPapers (16)

Published as National Tax Journal (September 1997): 387-398.

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