April 1, 2014

The True Weight of the Fiscal Gap

  • Laurence Kotlikoff

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Conventional fiscal accounting points to debt held by the public—currently at about $12 trillion—as the measure of a country’s fiscal sustainability.

To generate an accurate assessment of the US government’s fiscal sustainability, a recent study by Laurence Kotlikoff uses both fiscal gap accounting, which discloses the amount of adjustment needed to restore sustainability, and generational accounting, which looks at the impact of current and implied policy on specific generations.

Applying fiscal gap accounting, the study finds that the US official debt is just 6 percent of the federal government’s true fiscal gap of $205 trillion.