An Analysis of U.S. Fiscal and Generational Imbalances : Who Will Pay and How?

Author/Editor: Nicoletta Batini ; Julia Guerreiro ; Giovanni Callegari
Publication Date: April 01, 2011
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Disclaimer: This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate
Summary: This paper updates existing measures of the U.S. fiscal gap to include federal laws up to and including the mid-December 2010 federal fiscal stimulus. It then applies the methodology of generational accounting to establish how the burden of adjustment required to attain fiscal sustainability is shared across generations. We find that the U.S. fiscal and generational imbalances are large under plausible parametric assumptions, and, while not much affected by the financial crisis, they have not improved much by the passing of the Final Healthcare Legislation. We find that, under our baseline scenario, a full elimination of the fiscal and generational imbalances would require all taxes to go up and all transfers to be cut immediately and permanently by 35 percent. A delay in the adjustment makes it more costly.
Series: Working Paper No. 11/72
Subject(s): Economic models | Fiscal analysis | Fiscal sustainability | Public debt | Tax burdens | Tax reductions | Taxes

Author's Keyword(s): fiscal gap | generational accounting | fiscal policy | Final Healthcare Legislation | financial crisis | discount rate
Publication Date: April 01, 2011
ISBN/ISSN: 9781455227075/1018-5941 Format: Paper
Stock No: WPIEA2011072 Pages: 38
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