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Working Paper on the Need for Fiscal Goals

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Washington, August 16, 2016 | comments

When policymakers and the public have an understanding of the broad guidelines of government’s fiscal policy, it naturally leads to incremental budgetary targets that discipline spending and taxation. For much of America’s early history, the standard was the balanced budget. Since that principle was abandoned, no other norm emerged to take its place, and fiscal policy has been adrift.

An alternative to the balanced budget standard is “fiscal sustainability” – but its definition is elusive. It may refer to a stable or declining ratio of debt to gross domestic product; limiting deficits as a percentage of the economy; establishing spending or revenue targets; or several other options. Whatever standard is defined, it is not enough to be economically and fiscally defensible. It must be politically compelling to ensure a public consensus. The congressional budget process should then be reconstructed to achieve that goal.

Read the full paper here.

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