After deteriorating for a number of years the fiscal policy situation in the USA stabilised recently ; but risks remain. More economic policy adjustments will be required in the future as a result. In the latest issue of the CESifo Forum experts discuss the US fiscal cliff, analyse the measures taken to date in the context of US budgetary policy and offer assessments of future developments.
David J. Stockton, Peterson Institute for International Economics, describes the economic policy measures taken in the USA to deal with the budgetary difficulties and their impact on macroeconomic development. These measures include, for example, the Budget Control Act, which reduced the US deficit by around almost 1.1 trillion dollars, the American Taxpayer Relief Act of 2012, which increased marginal tax rates on the wealthiest households, and further federal and state level measures implemented in 2013, which allow for general cuts in spending. For Stockton, however, these measures do not suffice to ensure a balanced national budget in the long-term. Stockton argues for the adoption of a credible strategy oriented towards the long-term and characterised by financial policy restraint as soon as the economy returns to a more solid footing. This would also build trust in monetary policy, which could then be oriented towards preventing the short-term, negative side-effects that may occur in the case of fiscal policy with a long-term orientation.
Laurence Kotlikoff, University of Boston, takes a critical look at the public debate over the fiscal cliff in the USA. On the basis of warnings issued by leading economists in 2012, and especially from US Federal Bank Chairman Ben Bernanke, the term „fiscal cliff? and the risks for the US economy related to it were on everybody?s lips from that point on. According to Kotlikoff, however, this type of almost hysterical debate was not constructive because it may have essentially encouraged economic players to behave in ways that ultimately favoured a recession on the one hand; and because the empirical data supporting the pessimistic conclusions were not well-founded enough on the other. The debate once again allowed policy decision-makers to avoid implementing any deeper fiscal policy reforms. According to Kotlikoff, moreover, the US deficit will continue to grow in the long-term. In his opinion, any real debate over the reforms required to reduce the deficit is still a long way off in the USA. In view of the country's budgetary problems, Kotlikoff believes that economists have a special responsibility. They need to be very aware of the potential effects that their statements may have on the real economy. They should also bear in mind that any assessments which deny the existence of the deficit, or seek to relativise it and its related dangers for the future will not improve the situation.
