Auerbach slides
28
Long-Term Fiscal Issues Alan J. Auerbach University of California, Berkeley June, 2012
-
Upload
shawnmesaros -
Category
Documents
-
view
395 -
download
2
description
Auerbach describes the dial endgame for the USA without discussing solutions but does adequately drive the IMF policy view home. keep buying bonds or suffer the yields (and the pain) of Spain. We have a more constructive view. [email protected]
Transcript of Auerbach slides
Long-Term Fiscal Issues
Alan J. Auerbach
University of California, Berkeley
June, 2012
Outline
• For the United States:– How did we get here?– Where are we headed over the next ten years? – Where are we headed in the long term?
• Other countries’ long-run prospects
-6
-4
-2
0
2
4
6
8
10
12
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Per
cent
Fiscal Year
US Federal Budget Deficit (Percent of Potential GDP)
January 2001 projections
-6
-4
-2
0
2
4
6
8
10
12
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Per
cent
Fiscal Year
US Federal Budget Deficit (Percent of Potential GDP)
January 2001 projections
Legislative Revenue
Legislative Outlays
Legislative Interest
Economic
What Happened?
Three Phases:1. Economic downturn (2001) and slow recovery
-6
-4
-2
0
2
4
6
8
10
12
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Per
cent
Fiscal Year
US Federal Budget Deficit (Percent of Potential GDP)
January 2001 projections
Legislative Revenue
Legislative Outlays
Legislative Interest
Economic
What Happened?
Three Phases:1. Economic downturn (2001) and slow recovery
2. Policy throughout the 2000s • Tax cuts• Defense buildup• Medicare Part D
-6
-4
-2
0
2
4
6
8
10
12
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Per
cent
Fiscal Year
US Federal Budget Deficit (Percent of Potential GDP)
January 2001 projections
Legislative Revenue
Legislative Outlays
Legislative Interest
Economic
What Happened?
Three Phases:1. Economic downturn (2001) and slow recovery
2. Policy throughout the 2000s • Tax cuts• Defense buildup• Medicare Part D
3. The Great Recession• Increased deficits in 2009-11 due to weak economy
plus ARRA, TARP, etc.
-6
-4
-2
0
2
4
6
8
10
12
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Per
cent
Fiscal Year
US Federal Budget Deficit (Percent of Potential GDP)
January 2001 projections
Legislative Revenue
Legislative Outlays
Legislative Interest
Economic
Where Are We Headed? The Next Ten Years
0
1
2
3
4
5
6
7
8
9
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Per
cent
of
GD
P
Fiscal Year
Alternative Deficit Projections, 2012-2022
CBO Baseline
0
1
2
3
4
5
6
7
8
9
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Per
cent
of
GD
P
Fiscal Year
Alternative Deficit Projections, 2012-2022
CBO Baseline
Extended Policy
Obama Budget
40
50
60
70
80
90
100
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Per
cent
of
GD
P
Fiscal Year
Alternative Debt Projections, 2012-2022
Extended Policy
CBO Baseline
Obama Budget
Where Are We Headed?The Long Term
10
15
20
25
30
35
2012 2022 2032 2042 2052 2062 2072 2082
Per
cent
of
GD
P
Year
Revenues and Non-Interest Expenditures
Optimistic Scenario, Revenues
Optimistic Scenario, Expenditures
Pessimistic Scenario, Revenues
Pessimistic Scenario, Expenditures
0
200
400
600
800
1000
2012 2022 2032 2042 2052 2062 2072 2082
Per
cent
of
GD
P
Year
Projections of the National Debt
Optimistic Scenario
Pessimistic Scenario
The Fiscal Gap
• The immediate and permanent tax increase or spending cut (or combination) that would keep the debt/GDP ratio at the same level in the long term as it is now
Baseline Fiscal Gap Assumptions
• Start with one of three scenarios through 2022• After 2022, most categories of spending and
revenues stay constant as a share of GDP • Social Security estimates derived from
Trustees report• Medicaid derived from CBO estimates• Medicare derived from one of three sources
(Medicare Trustees, CMS Actuary, CBO)
Fiscal Gaps(Percent of GDP)
CBO Baseline Obama Budget Extended Policy
Health Spending Assumptions
Through 2089 Permanent
Through 2089 Permanent
Through 2089 Permanent
Medicare Trustees 2.18 3.12 3.22 4.10 5.21 6.21
CMS Actuary 3.56 5.38 4.58 6.34 6.64 8.56
CBO Alternative 3.67 5.97 4.69 6.91 6.76 9.16
Fiscal Gaps(Percent of GDP)
CBO Baseline Obama Budget Extended Policy
Health Spending Assumptions
Through 2089 Permanent
Through 2089 Permanent
Through 2089 Permanent
Medicare Trustees 2.18 3.12 3.22 4.10 5.21 6.21
CMS Actuary 3.56 5.38 4.58 6.34 6.64 8.56
CBO Alternative 3.67 5.97 4.69 6.91 6.76 9.16
Fiscal Gaps(Percent of GDP)
CBO Baseline Obama Budget Extended Policy
Health Spending Assumptions
Through 2089 Permanent
Through 2089 Permanent
Through 2089 Permanent
Medicare Trustees 2.18 3.12 3.22 4.10 5.21 6.21
CMS Actuary 3.56 5.38 4.58 6.34 6.64 8.56
CBO Alternative 3.67 5.97 4.69 6.91 6.76 9.16
The Outlook Elsewhere
• In most developed countries, also large fiscal gaps
24
-0.2
-0.15
-0.1
-0.05
0
0.05
0.1
0.15
AT
AU BE
CA
DE
DK EL ES FI
FR IE IT JA NL
NO
NZ
PT SE
UK
US
A
Fra
ctio
n of
GD
PFiscal Gaps through 2060
Baseline No Initial Debt No Pension or Health Growth
25
-0.2
-0.15
-0.1
-0.05
0
0.05
0.1
0.15
AT
AU BE
CA
DE
DK EL ES FI
FR IE IT JA NL
NO
NZ
PT SE
UK
US
A
Fra
ctio
n of
GD
PFiscal Gaps through 2060
Baseline No Initial Debt No Pension or Health Growth
26
-0.2
-0.15
-0.1
-0.05
0
0.05
0.1
0.15
AT
AU BE
CA
DE
DK EL ES FI
FR IE IT JA NL
NO
NZ
PT SE
UK
US
A
Fra
ctio
n of
GD
PFiscal Gaps through 2060
Baseline No Initial Debt No Pension or Health Growth
0
10
20
30
40
50
60
70
1972 1977 1982 1987 1992 1997 2002 2007 2012 2017 2022
Per
cent
of
Non
-Int
eres
t S
pend
ing
Year
Share of U.S. FederalNon-Interest Spending, 1972-2022
Social Security + Medical
Discretionary
The Nature of a Long-Term Solution
• For the United States and other countries, old-age entitlement programs are the key problem
• But tax increases are almost certainly in the picture as well, since the overall changes required will be very large
• A particular challenge, given– Current economic weakness around the world– Need for long planning horizon to restructure
spending
