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Choosing the Nation’s Fiscal Future
the government’s debt the same size (relative to the size of the economy) at the end of a given period as it was at the beginning.
An advantage of the “fiscal gap” measure is that it condenses a long-term series of estimates into a single meaningful number that can be used to judge the required scale of corrective action and to compare with gap estimates made at different times or across budgets with different policy components. A disadvantage of the “fiscal gap” measure is the amount of mathematical sophistication required to interpret it.
Using CBO’s “current-law” baseline, Auerbach and Gale (2009) estimated the fiscal gap for the U.S. federal budget baseline in mid-2009 at around 4.4 percent of GDP for projected flows through 2085 and 6.25 percent of GDP if flows are projected over an indefinite horizon. Under alternative assumptions more similar to those used in this report, their estimates of the gap ranged from 7.44 to 9.36 percent.
Anderson, B., and Sheppard, J. (2010). Fiscal futures, institutional budget reforms, and their effects: What can be learned? OECD Journal on Budgeting, 2009(3).
Auerbach, A.J. (1994). The U.S. fiscal problem: Where we are, how we got here, and where we’re going. In S. Fischer and J. Rotemberg, eds., NBER Macroeconomics Annual, pp. 141-175. Cambridge, MA: National Bureau of Economic Research.
Organisation for Economic Co-operation and Development. (2007). Paris, France: Organisation for Economic Co-operation and Development.
Schick, A. (2005). Sustainable budget policy: Concepts and approaches. OECD Journal onBudgeting, 5(1), 107-125.
von Furstenberg, G.M. (1991). Taxes: A license to spend or a late charge? Part three of TheGreat Fiscal Experiment, R.G. Penner, ed. Pp. 155-191. Washington, DC: Urban Institute Press.
Wyplosz, C. (2007). Debt Sustainability Assessment: The IMF Approach and Alternatives. HEI Working Paper No. 03/2007. Graduate Institute of International Studies, Geneva, Switzerland. Available: http://ideas.repec.org/p/gii/-2007.html [December 2009].