L4: Tools of Budget Analysis Flashcards
government debt
amount a government owes to those who have loaned it money
stock: level at a given point in time
government deficit
amount by which a government’s spending exceeds its revenues in a given year
flow: amount that accumulates over a period
how can the debt-GDP ratio fall if there is a deficit?
if GDP grows faster than debt
2 types of federal spending
entitlement spending
discretionary spending
entitlement spending
spending determined by the number of people qualifying for programs and how much it costs to pay for it
not determined by the government but the rules/legislation of the program
discretionary spending
optional spending set by appropriation levels each year at Congress’ discretion
more flexibility
balanced budget requirement
law forcing a given government to balance its budget each year (spending = revenue)
ex-poste balanced budget requirement
government must balance its budget by the end of each fiscal year
ex-ante balanced budget requirement
governor must submit a balanced budget or the legislature must pass a balanced budget at the start of each fiscal year or both
policies implemented to rein in deficits
deficit caps
spending caps
- limits on discretionary spending
PAYGO requirements
- requirements if you increase entitlement programs to raise taxes or cut programs
sequestration
- automatic cuts to programs if you miss a target
debt ceiling
static scoring - taxes
assuming no behavioural responses and changes in GDP
if taxes raised by 1%, figuring out how much income the 1% applies to multiplying it by that
argument that it overestimates revenue from a tax increase and underestimates revenue lost from a tax cut
dynamic scoring
controversy over whether to account for revenue and spending effects of changes in GDP caused by changes in provisions
implicit liabilities
financial obligations that the government has in the future that are not recognised in the annual budgetary process
present discounted value
value of a future dollar valued in today’s terms
government intertemporal budget constraint
equation relating the government’s current liabilities to all future spending and revenues
constraint the government actually faces in terms of its ability to increase spending without raising taxes for deficits
- assuming government does not keep issuing debt at a rate faster than the interest rate
