曼昆第10版课件mankiw10e-lecture-slides-ch17

GovernmentDebtandBudgetDeficitsMacroeconomicsN.GregoryMankiw©2019WorthPublishers,allrightsreservedINTHISCHAPTER,YOUWILLLEARN:AboutthesizeoftheU.S.government’sdebt

andhowitcomparestothatofothercountriesAboutproblemsmeasuringthebudgetdeficitAboutthetraditionalandRicardianviewsofthegovernmentdebtAboutotherperspectivesongovernmentdebtIndebtednessoftheworld’sgovernmentsCountryGovernmentDebtasaPercentageofGDPGreece149.1Italy129.9Japan125.5Portugal104.7Belgium96.5UnitedKingdom91.8Spain83.0UnitedStates81.3France79.0Netherlands40.6Germany39.9Canada31.0Switzerland5.5Australia−15.3RatioofU.S.governmentdebttoGDPTheU.S.experienceinrecentyears,part1Early1980sthroughearly1990s:debt-to-GDPratio:25.5%in1980,48.9%in1993duetoReagantaxcutsandincreasesindefensespendingandentitlementsEarly1990sthrough2000:$290billiondeficitin1992,$236billionsurplusin2000debt-to-GDPratiofellto32.5%in2000duetorapidgrowth,stockmarketboom,taxhikesTheU.S.experienceisrecentyears,part2Early2000s:thereturnofhugedeficitsduetoBushtaxcuts,the2001recession,andtheIraqwarThe2008–2009recessionanditsaftermath:fallintaxrevenueshugespendingincreases(bailoutsoffinancialinstitutionsandautoindustry,stimuluspackage)aweakrecoverydidnotstopthedebt-to-GDPratiofromrisingfurtherThetroublinglong-termfiscaloutlookTheU.S.populationisaging.Healthcarecostsarerising.SpendingonentitlementslikeSocialSecurityandMedicareisgrowing.Deficitsandthedebtareprojectedtosignificantlyincrease...U.S.populationage65+,asapercentageofthepopulationage20-64U.S.governmentspendingonMedicareandSocialSecurity,1948-2014ProblemsmeasuringthedeficitInflationCapitalassetsUncountedliabilitiesThebusinesscycleMEASUREMENTPROBLEM1:Inflation,part1Supposetherealdebtisconstant,whichimpliesazerorealdeficit.Inthiscase,thenominaldebtD

growsattherateofinflation:ΔD/D

=π

orΔD

=π

DThereporteddeficit(nominal)isπ

Deventhoughtherealdeficitiszero.Hence,wesubtractπD

fromthereporteddeficittocorrectforinflation.MEASUREMENTPROBLEM1:Inflation,part2Correctingthedeficitforinflationcanmakeahugedifference,especiallywheninflationishigh.Example:In1979,nominaldeficit=$28billioninflation=8.6%debt=$495billionπ

D=0.086×$495b=$43brealdeficit=$28b−$43b=$15bsurplusMEASUREMENTPROBLEM2:CapitalassetsCurrently,deficit=changeindebtBetter,capitalbudgeting:

deficit=(changeindebt)–(changeinassets)Example:Supposethegovtsellsanofficebuildingandusestheproceedstopaydownthedebt.undercurrentsystem,deficitwouldfallundercapitalbudgeting,deficitunchanged,becausefallindebtisoffsetbyafallinassetsProblemwithcapitalbudgeting:determiningwhichgovernmentexpenditurescountascapitalexpenditures.MEASUREMENTPROBLEM3:UncountedliabilitiesThecurrentmeasureofthedeficitomitsimportantliabilitiesofthegovernment:futurepensionpaymentsowedtocurrentgovtworkersfutureSocialSecuritypaymentscontingentliabilities,suchascoveringfederallyinsureddepositswhenbanksfail(Itisdifficulttoattachadollarvaluetocontingentliabilitiesduetotheinherentuncertainty.)MEASUREMENTPROBLEM4:Thebusinesscycle,part1Thedeficitvariesoverthebusinesscycleduetoautomaticstabilizers(unemploymentinsurance,theincometaxsystem).Thesearenotmeasurementerrorsbutdomakeithardertojudgefiscalpolicystance.Example:Isanobservedincreaseinthedeficit

duetoadownturnoranexpansionaryshiftinfiscalpolicy?MEASUREMENTPROBLEM4:Thebusinesscycle,part2Solution:cyclicallyadjustedbudgetdeficit

(akafull-employmentdeficit)basedonestimatesofwhatgovernmentspendingandrevenueswouldbeiftheeconomywereatthenaturalratesofoutputandunemployment.TheactualandcyclicallyadjustedU.S.federalbudgetsurpluses/deficitsThebottomlineWemustexercisecarewheninterpretingthereporteddeficitfigures.Isgovernmentdebtreallyaproblem?Considerataxcutwithcorrespondingincreaseinthegovernmentdebt.Twoviewpoints:TraditionalviewRicardianviewThetraditionalviewShortrun:

Y,

uLongrun:Y

andu

backattheirnaturalratesclosedeconomy:

r,

Iopeneconomy:

ε,

NX

(orhighertradedefiacit)Verylongrun:slowergrowthuntiltheeconomyreachesanewsteadystatewithlowerincomepercapitaTheRicardianviewduetoDavidRicardo(1820),advancedmorerecentlybyRobertBarroAccordingtoRicardianequivalence,adebt-financedtaxcuthasnoeffectonconsumption,nationalsaving,therealinterestrate,investment,netexports,orrealGDP,evenintheshortrun.ThelogicofRicardianequivalenceConsumersareforward-looking,knowthatadebt-financedtaxcuttodayimpliesanincreaseinfuturetaxes

thatisequal—inpresentvalue—tothetaxcut.Thetaxcutdoesnotmakeconsumersbetteroff,sotheydonotincreaseconsumptionspending.Instead,theysavethefulltaxcutinordertorepaythefuturetaxliability.Result:Privatesavingrisesbytheamountpublicsavingfalls,leavingnationalsavingunchanged.ProblemswithRicardianequivalenceMyopia:Notallconsumersthinksofarahead;someseethetaxcutasawindfall.Borrowingconstraints:Someconsumerscannotborrowenoughtoachievetheiroptimalconsumption,sotheyspendataxcut.Futuregenerations:Ifconsumersexpectthattheburdenofrepayingataxcutwillfallonfuturegenerations,thenataxcutnowmakesthemfeelbetteroff,sotheyincreasespending.EvidenceagainstRicardianequivalence?Part1Early1980s:Reagantaxcutsincreasedthedeficit.Nationalsavingfell,therealinterestraterose,theexchangerateappreciated,andNXfell.1992:Incometaxwithholdingwasreducedtostimulatetheeconomy.Thisdelayedtaxesbutdidn’tmakeconsumersbetteroff.Almosthalfofconsumersincreasedconsumption.EvidenceagainstRicardianequivalence?Part2ProponentsofRicardianequivalencearguethattheReagantaxcutsdidnotprovideafairtestofRicardianequivalence.Consumersmayhaveexpectedthedebttoberepaidwithfuturespendingcutsinsteadoffuturetaxhikes.Privatesavingmayhavefallenforreasonsotherthanthetaxcut,suchasoptimismabouttheeconomy.Becausethedataaresubjecttodifferentinterpretations,bothviewsofgovernmentdebtsurvive.OTHERPERSPECTIVES:BalancedbudgetsversusoptimalfiscalpolicySomepoliticianshaveproposedamendingtheU.S.Constitutiontorequireabalancedfederalgovernmentbudgeteveryyear.Manyeconomistsrejectthisproposal,arguingthatthedeficitshouldbeusedto:stabilizeoutputandemploymentsmoothtaxesinthefaceoffluctuatingincomeredistributeincomeacrossgenerations,whenappropriateOTHERPERSPECTIVES:FiscaleffectsonmonetarypolicyGovernmentdeficitsmaybefinancedbyprintingmoney.Ahighgovernmentdebtmaybeanincentiveforpolicymakerstocreateinflation(toreducerealvalueofdebtatexpenseofbondholders).Fortunately:littleevidencethatthelinkbetweenfiscalandmonetarypolicyisimportantmostgovernmentsknowthefollyofcreatinginflationmostcentralbankshaveatleastsomepoliticalindependencefromfiscalpolicymakersOTHERPERSPECTIVES:Debtandpolitics“Fiscalpolicyismadenotbyangels

butbyanimperfectpoliticalprocess”—N.GregoryMankiw,p.514Somedonottrustpolicymakerswithdeficitspending.Theyarguethat:policymakersdonotworryabouttruecostsoftheirspending,sincetheburdenfallsonfuturetaxpayers.sincefuturetaxpayerscannotparticipateinthedecisionprocess,theirinterestsmaynotbetakenintoaccount.Thisisanotherreasonfortheproposalsforabalancedbudgetamendment(discussedabove).OTHERPERSPECTIVES:InternationaldimensionsGovernmentbudgetdeficitscanleadtotradedeficits,whichmustbefinancedbyborrowingfromabroad.Largegovernmentdebtmayincreasetheriskofcapitalflight,asforeigninvestorsmayperceiveagreaterriskofdefault.Largedebtmayreduceacountry’spoliticalcloutininternationalaffairs.CHAPTERSUMMARY,PART1RelativetoGDP,theU.S.government’sdebtismoderatecomparedtothatofothercountries.Standardfiguresonthedeficitareimperfectmeasuresoffiscalpolicybecausethey:arenotcorrectedforinflation.donotaccountforchangesingovernmentassets.omitsomeliabilities(suchasfuturepensionpaymentstocurrentworkers).donotaccountfortheeffectsofbusinesscycles.CHAPTERSUMMARY,PART2Inthet