Budget Windows, Sunsets, and Fiscal Control

34 Pages Posted: 29 Dec 2006 Last revised: 22 Sep 2010

See all articles by Alan J. Auerbach

Alan J. Auerbach

University of California, Berkeley - Department of Economics; National Bureau of Economic Research (NBER); CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

Date Written: August 2004

Abstract

Governments around the world have struggled to find the right method of controlling public spending and budget deficits. In recent years, the United States has evaluated policy changes using a ten-year budget window. The use of a multi-year window is intended to capture the future effects of policies, the notion being that a budget window that is too short permits the shifting of costs beyond the window's endpoint. But a budget window that is too long includes future years for which current legislation is essentially meaningless, and gives credit to fiscal burdens shifted to those whom the budget rules are supposed to protect. This suggests that there may be an "optimal"budget window, and seeking to understand its properties is one of this paper's main objectives. Another objective is to understand a phenomenon that has grown in importance in U.S. legislation -- the "sunset." This paper argues that, with an appropriately designed budget window, the incentive to use sunsets to avoid budget restrictions will evaporate, so that temporary provisions can be taken at face value. The analysis also has implications for how to account for long-term term budget commitments.

Suggested Citation

Auerbach, Alan Jeffrey, Budget Windows, Sunsets, and Fiscal Control (August 2004). NBER Working Paper No. w10694. Available at SSRN: https://ssrn.com/abstract=579225

Alan Jeffrey Auerbach (Contact Author)

University of California, Berkeley - Department of Economics ( email )

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National Bureau of Economic Research (NBER) ( email )

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CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

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