Budget deficits and government accounting

Abstract

The paper examines the measurement of government debts and budget deficits. The main theoretical finding is that accrual-based government accounts are well-defined and economically relevant, provided taxation is distortionary on the margin. The empirical section derives U.S. government balance sheets and income statements for 1947–1989. For 1989, U.S. government net debt is about $3380 billion; government net worth is about -$1680 billion. This includes unfunded government employee pensions but not the social-security system. I argue that social security creates a separate class of government obligations that are enforced by political rather than contractual, market-based mechanisms.