The Government Debt Iceberg

Jagadeesh Gokhale

• Publisher: London Publishing Partnership
• Year: 2014
• Print ISBN: 9780255366663
• eBook ISBN: 9780255366984
• Edition: 1

Nobody who has even a passing acquaintance with economics could fail to realise that Western governments are highly indebted. Current generations have been consuming at the expense of future generations. However, just how indebted are we? The government measures how much it has borrowed to meet past spending commitments, but it does not measure how much money it needs to meet all the future pensions and healthcare promises it has made to tomorrow's older generations. Furthermore, no funds have been set aside to provide for these costs. Governments are allowed to produce accounting information in such a cavalier fashion, using methods that would be illegal for private sector companies. Fortunately, though, scholars have been able to examine the detail of government policy and the financial commitments of future governments in order to determine just how indebted we are. This IEA publication brings such calculations to life by showing by how much spending will need to be cut and taxes raised in order to make the government's fiscal position sustainable. This work should be of interest to politicians, to students and teachers of economics and, indeed, all who are interested in public policy and the sustainability of Western economies.

Table of contents

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• Table 1 Potential changes to scheduled ‘current law’ fiscal policies
• Table 2 Ten-year generational accounts by selected age and gender: 2013–22 (present values of net taxes in $000s 2012 dollars)⤀
• Table 3 Lifetime generational accounts as of fiscal year 2013 by selected age and gender (present values of net taxes in $000s 2012 dollars)
• Table 4 The federal government’s fiscal imbalance under baseline policies (beginning-of-fiscal-year present values in billions of constant 2012 dollars)
• Table 5 The federal government’s fiscal imbalance under alternative policies (beginning-of-fiscal-year present values in billions of constant 2012 dollars)
• Table 6 The federal government’s fiscal imbalance under baseline policies as a percentage of the present value of GDP (beginning-of-fiscal-year values)
• Table 7 The federal government’s fiscal imbalance under alternative policies as a percentage of the present value of GDP (beginning-of-fiscal-year values)
• Table 8 The federal government’s fiscal imbalance under baseline policies as a percentage of the present value of uncapped pay olls (beginning-of-fiscal-year values)
• Table 9 The federal government’s fiscal imbalance under alternative policies as a percentage of the present value of uncapped payrolls (beginning-of-fiscal-year values)
• Table 10 The federal fiscal imbalance as a ratio of various tax and expenditure bases
• Table 11 The contribution of Social Security and Medicare to the federal fiscal imbalance: CBO alternative projections ($billions)
• Table 12 The contribution of Social Security and Medicare to the federal fiscal imbalance as a percentage of the present value of uncapped payrolls: CBO’s alternative projections
• Table 13 Sensitivity of the fiscal imbalance ratio to variation in long-term interest rates and productivity growth assumptions (baseline projections; percentage of uncapped payrolls)
• Table 14 Percentage point increases in average tax rates and percentage point cuts to selected expenditure programmes needed – immediately and permanently – to eliminate fiscal imbalances in EU countries
• Table 15 Projected annual changes in fiscal imbalances: interest accruals and shifting the projection window
• Figure 1 US federal debt as percentage of GDP
• Figure 2 EU gross debt as percentage of GDP
• Figure 3 Age dependency ratios in the EU, the UK and the US
• Figure 4 Inter-generational transfers in pay-as-you-go systems
• Figure 5 Male consumption by age group
• Figure 6 Female consumption by age group
• Figure 7 Government revenues and expenditures as a percentage of GDP in selected EU countries
• Figure 8 General government debt as a percentage of annual GDP in selected EU countries: 2007 and 2010
• Figure 9 Worker-to-retiree population ratios in selected EU nations
• Figure 10 Social protection expenditure shares in GDP (2010)
• Figure 11 Relative profiles of social protection expenditures and social insurance contributions (index 40-year-old male = 1)
• Figure 12 Fiscal imbalance as of 2010 (explicit and implicit debt) as a percentage of the present value of GDP
• The author
• Foreword
• Acknowledgement and note on sources
• Summary
• Tables and figures
• Introduction
• Why we need forward-looking measures of government finances
• The inter-generational tensions
• The extent of government indebtedness
• The fiscal environment in Europe and the United States
• The fiscal background in the euro zone
• Fiscal conditions in United Kingdom
• Fiscal conditions in the United States
• Population ageing in Europe and the United States
• The why and how of fiscal and generational imbalance calculations
• Government off-balance-sheet borrowing
• Understanding the inter-generational transfers
• Can we afford pay-as-you-go programmes because our children will be richer?
• Algebraic presentation of inter-generational accounting
• Why calculate fiscal and generational imbalances?
• How should fiscal imbalances be reported?
• Fiscal policy under short-term and long-term fiscal metrics
• Short-term fiscal metrics and the distortion of policy
• Constructing long-term fiscal and generational imbalance measures
• Disaggregating the fiscal imbalance for the US
• Current generations versus future generations: a stylised example
• US public policy debates: caught in a prisoner’s dilemma
• US Congressional Budget Office’s projections: ‘baseline’ versus ‘alternative’
• The generational implications of the CBO’s ten-year budget projections: 2013–22
• The long-term generational implications of baseline and alternative US fiscal paths
• The US federal fiscal imbalance
• Various methods of presenting the fiscal imbalance
• How the fiscal imbalance will evolve
• The contribution of Social Security and Medicare to the US fiscal imbalance
• Future generations versus current and past generations
• Economic effects of the current US federal fiscal stance
• Sensitivity of US fiscal imbalance ratio to productivity and interest rate assumptions
• Fiscal imbalances in European Union nations: short-term metrics
• Background to the EU’s long-term fiscal position
• Policy errors arising from short-term fiscal measures
• How big are EU fiscal imbalances?
• Responding to fiscal imbalances
• Alternative policy actions
• The problems of delaying policy action
• Short-term focus of current budget policy
• Policy possibilities for the long term
• Conclusion
• The United States
• The European Union
• References
• Blank Page