fiscalpolicy

fiscalpolicy - More On Government Debt and Fiscal Policy...

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0 More On Government Debt and Fiscal Policy UCLA Winter 2009 Professor Mark Wright
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1 In this section, you will learn… z About “Ricardian Equivalence” which suggests fiscal policy should be impotent z About the size of the U.S. government’s debt, and how it compares to that of other countries z Problems measuring the budget deficit How politicians lie about the budget z Other perspectives on the debt
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Indebtedness of the world Indebtedness of the world s governments s governments Country Gov Debt (% of GDP) Country Gov Debt (% of GDP) Japan 159 U.S.A. 64 Italy 125 Sweden 62 Greece 108 Finland 53 Belgium 99 Norway 52 France 77 Denmark 50 Portugal 77 Spain 49 Germany 70 U.K. 47 Austria 69 Ireland 30 Canada 69 Korea 20 Netherlands 64 Australia 15
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Ratio of U.S. govt debt to GDP 0 0.2 0.4 0.6 0.8 1 1.2 1791 1815 1839 1863 1887 1911 1935 1959 1983 2007 Revolutionary War Civil War WW1 WW2 Iraq War
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4 The U.S. experience in recent years Early 1980s through early 1990s debt-GDP ratio: 25.5% in 1980, 48.9% in 1993 due to Reagan tax cuts, increases in defense spending & entitlements Early 1990s through 2000 $290b deficit in 1992, $236b surplus in 2000 debt-GDP ratio fell to 32.5% in 2000 due to rapid growth, stock market boom, tax hikes Since 2001 the return of huge deficits, due to Bush tax cuts, 2001 recession, Iraq war
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5 The troubling fiscal outlook z The cost of the bailouts and the stimulus package z The aging U.S. population. z Health care costs are rising. z Spending Social Security and Medicare is growing. z Deficits and the debt are projected to significantly increase…
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6 Percent of U.S. population age 65+ Percent of pop. 5 8 11 14 17 20 23 1950 1960 1970 1980 1990 2000 2010 2020 2030 2040 2050 actual projected
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7 U.S. government spending on Medicare and Social Security Percent of GDP 0 2 4 6 8 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005
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8 CBO projected federal govt debt (not including bailouts & stimulus) Percent of GDP 0 50 100 150 200 250 300 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050 optimistic scenario pessimistic scenario
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9 CBO Projections -1,400 -1,200 -1,000 -800 -600 -400 -200 0 200 400 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 $ Billions Projected Federal Deficit As Of January 2009 Projected Federal Deficit As Of January 2009 (including bailouts of Fannie May and Freddie Mac) Projected Federal Deficit As Of September 2008 Projected Federal Deficit As Of March 2008
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10 Problems measuring the deficit 1. Inflation 2. Capital assets 3. Uncounted liabilities 4. The business cycle
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This note was uploaded on 08/19/2009 for the course ECON 102 taught by Professor Serra during the Spring '08 term at UCLA.

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fiscalpolicy - More On Government Debt and Fiscal Policy...

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