Open AccessWhen is fiscal adjustment an illusion?
Author(s) -
William Easterly
Publication year - 1999
Publication title -
economic policy
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 4.579
H-Index - 75
eISSN - 1468-0327
pISSN - 0266-4658
DOI - 10.1111/1468-0327.00044
Subject(s) - economics , deficit spending , debt , asset (computer security) , monetary economics , government (linguistics) , public sector , government debt , budget constraint , public finance , fiscal policy , government budget , fiscal imbalance , macroeconomics , economic policy , fiscal union , economy , linguistics , philosophy , computer security , neoclassical economics , computer science
Fiscal adjustment is an illusion when it lowers the budget deficit or public debt but leaves government net worth unchanged. Conventional measures of the budget deficit largely show the change in public sector debt. Ideally, the measured deficit would reflect the change in public sector net worth. Many people consider it impractical to try to measure public sector assets. My paper does not discuss what the deficit should measure, but instead proposes a positive and testable theory of how governments actually behave. Copyright Centre for Economic Policy Research, Centre for Economic Studies, Maison des Sciences de l'Homme 1999.
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