Alternative Measures of U.S. Fiscal Deficits

The most widely quoted financial statistic about the U.S. government is its annual budget deficit.  This measure, usually interpreted as an indicator of the extent to which the government is shifting costs incurred in the current period to the future, can be incomplete and misleading. At the very least, informed citizens with an interest in future tax burdens or intergenerational equity need to supplement the current deficit measure with broader, more comprehensive statistics that are currently available, but which also have their own limitations.  In this article, we describe some of the major omissions of the U.S. federal budget deficit and consider the additional information provided by three broader measures of fiscal shortfall: the increase in outstanding gross federal debt; the change in the government’s net financial position; and the change in the fiscal gap.            Effectively, we offer an evaluation of one element of the budget—the deficit—by the single criteria of its comprehensiveness as a measure of the burden of today’s policies on future taxpayers and other stakeholders. Additional budget elements that could be evaluated using other criteria include budget outlays as a measure of the size of government or the effectiveness of the budget process in achieving the goals of efficiency, stability, and equity. These topics, however, are beyond the scope of this paper.

Tax Expenditures, the Size and Efficiency of Government, and Implications for Budget Reform

One possible explanation for the difficulty in controlling the budget is that a major component of spending —tax expenditures—receives privileged status. It is treated as tax cuts rather than spending. This paper explores the implications of that classification and illustrates how it can lead to higher taxes, larger government, and an inefficient mix of spending (too many tax expenditures). The paper then analyzes alternative budgeting approaches that would explicitly incorporate and measure tax expenditures. It concludes by analyzing ways to control tax expenditures (and other spending) and the special challenges presented by tax expenditures.

Technical Paper Series Congressional Budget Office Washington, DC VALUING FEDERAL LOANS AND LOAN GUARANTEES USING OPTIONS-PRICING METHODS

Technical papers in this series are preliminary and are circulated to stimulate discussion and critical comment. These papers are not subject to CBO's formal review and editing processes. The analysis and conclusions expressed in them are those of the authors and should not be interpreted as those of the Congressional Budget Office. References in publications should be cleared with the authors. Papers in this series can be obtained at www.cbo.gov/tech.cfm

MARAD's MSP Option: Exemplary Innovation in Acquisition Policy?

The potential of real call options to reduce the cost of meeting unpredictable variations in demand for support assets and services by government motivates this examination of an apparently successful instance by the U.S. Maritime Administration's Maritime Security Program (MSP). This case study, however, fails to find corroborating evidence of efficiency gains. The MSP's financing and structure obscures and understates the total cost of the acquired service and likely fails to minimize costs. Identified program modifications could increase transparency and strengthen program management.Naval Postgraduate School Acquisition Research Progra

MARAD's Maritime Security Program: Exemplary Innovation in Acquisition Policy?

The potential of real call options to reduce the cost of meeting unpredictable variations in demand for support assets and services by government motivates this examination of an apparently successful instance by the U.S. Maritime Administration's Maritime Security Program (MSP). This case study, however, fails to find corroborating evidence of efficiency gains. The MSP's financing and structure obscures and understates the total cost of the acquired service and likely fails to minimize costs. Identified program modifications could increase transparency and strengthen program management.Naval Postgraduate School Acquisition Research Progra

Budgeting for disasters: Focusing on the good times

Some ways of budgeting for disasters have the potential to increase welfare by increasing national savings, reducing exposure to risk and promoting mitigation prior to a loss. Those ways can also contribute to aggregate fiscal stability over the long term. The power of budgeting, however, can be misdirected to increase losses and lead to fiscal instability. This paper describes the potential for gain from alternative budgetary treatments of policies aimed at reducing the effects on consumption of random shocks to income and wealth. It identifies a critical difference between alternatives: budgetary recognition of expected costs of relief and recovery before the loss event. We classify those different methods as ex ante and ex post budgeting. We also consider some budgetary mechanisms that can promote effective recognition and constrain opportunistic behavior by elected officials. Finally, this paper describes related budgetary practices in some OECD countries. Many have instituted policies consistent with ex ante budgeting, but we have insufficient information to determine their effectiveness.