Abstract

http://ssrn.com/abstract=1297367
 
 

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The Long-Term U.S. Fiscal Gap: Is the Main Problem Generational Inequity?


Daniel Shaviro


New York University School of Law

November 7, 2008

George Washington Law Review, Vol. 76, 2008
NYU Law and Economics Research Paper No. 08-47

Abstract:     
Current U.S. budget policy is unsustainable because it violates the intertemporal budget constraint. While the resulting fiscal gap will eventually be eliminated whether we like it or not, the big issue in current budget debate is whether the ultimately unavoidable course corrections should start now or be left for later. This paper argues that concerns of generational equity, which often are relied on by those demanding a prompt course correction, do not convincingly settle the issue, given empirical uncertainties about future generations' circumstances. However, efficiency issues create powerful grounds for urging a course correction sooner rather than later, on three main grounds: to eliminate the risk of a catastrophic fiscal collapse, achieve the advantages of tax smoothing, and smooth adjustments to the consumption made possible by various government outlays. Political economy considerations suggest that the risk of a catastrophic fiscal collapse may be significant even though in principle it could easily be avoided.

Number of Pages in PDF File: 60

JEL Classification: E60, E62, H50, H51, H60, H61, H62, H63

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Date posted: November 12, 2008 ; Last revised: October 2, 2009

Suggested Citation

Shaviro, Daniel, The Long-Term U.S. Fiscal Gap: Is the Main Problem Generational Inequity? (November 7, 2008). George Washington Law Review, Vol. 76, 2008; NYU Law and Economics Research Paper No. 08-47. Available at SSRN: http://ssrn.com/abstract=1297367

Contact Information

Daniel Shaviro (Contact Author)
New York University School of Law ( email )
40 Washington Square South
Room 314-B
New York, NY 10012-1099
United States
212-998-6187 (Phone)
212-995-4341 (Fax)
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