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demand higher interest rates in the future, even if infla- scenario) or about 5 percent of GDP (relative to the
tion was eventually reduced; thus, as debt matured, it
policies assumed for the alternative fiscal scenario) would
would be refinanced at higher rates. Indeed, even raising
prevent a net increase in the U.S. debt-to-GDP ratio over
the perceived likelihood of higher inflation during a fiscal
the next 25 years. The latter would be equivalent to
crisis would trigger immediate further increases in inter-
roughly 20 percent of all of the government s noninterest
est rates. Moreover, the amounts of many government
spending this year. Actions taken later, particularly if
benefits rise when prices rise, and much of the income tax
there was a fiscal crisis, would need to be significantly
system is indexed to inflation. On balance, the increase in
greater to achieve that same objective. Larger and more
tax revenues resulting from higher inflation would be
abrupt changes in fiscal policy, such as substantial cuts in
more than offset by higher payments for benefit programs
government benefit programs, would be more difficult
and higher interest payments as the outstanding debt
for people to adjust to than smaller and more gradual
rolled over and ongoing deficits required the issuance
changes.
of more debt.19
Increasing Taxes and Reducing Spending
20. See, for example, Alberto Alesina,  Fiscal Adjustments: Lessons
Austerity programs generally include both tax increases
from Recent History (paper presented at a meeting of Ecofin,
and spending reductions. When fiscal crises occur during
Madrid, April 15, 2010); Alberto Alesina and Silvia Ardagna,
recessions, as they often do, such policy changes can
Large Changes in Fiscal Policy: Taxes Versus Spending, Working
Paper No. 15438 (Cambridge, Mass.: National Bureau of
exacerbate the economic downturns although some
Economic Research, October 2009); Roberto Perotti,  Fiscal
studies suggest that certain types of fiscal austerity pro-
Policy in Good Times and Bad, Quarterly Journal of Economics,
grams tend, at least in some circumstances, to stimulate
vol. 114, no. 4 (November 1999), pp. 1399 1436; and Alberto
economic growth.20
Alesina and Silvia Ardagna,  Tales of Fiscal Adjustment,
Economic Policy, vol. 13, no. 27 (October 1998), pp. 487 545.
The later that actions are taken to address persistent
budget imbalances, the more severe they will have to be.
CBO s long-term projections for the federal budget
This brief was prepared by Jonathan Huntley of CBO s
Macroeconomic Analysis Division. It and other
18. See Congressional Budget Office, The Budget and Economic
CBO publications are available at the agency s Web site
Outlook: Fiscal Years 2010 to 2020, Appendix C.
(www.cbo.gov).
19. Historically, the long-term effects of countries inflating away part
of their debt very high borrowing costs and reduced economic
output have been similar to the effects of explicit debt
Douglas W. Elmendorf
restructurings. See Reinhart, Rogoff, and Savastano,  Debt
Director
Intolerance. [ Pobierz całość w formacie PDF ]