Journal of Economic Perspectives
ISSN 0895-3309 (Print) | ISSN 1944-7965 (Online)
Putting US Fiscal Policy on a Sustainable Path
Journal of Economic Perspectives
(pp. 27–48)
(Complimentary)
Abstract
Even allowing for uncertainty about the future economy, current US fiscal policies are almost certainly unsustainable. Therefore, policymakers must decide when and in what ways to raise taxes and reduce spending to put debt on a lower trajectory. Acting sooner rather than later would increase national savings, broaden the policy options, reduce the chance of a fiscal crisis, and provide fiscal space for responding to adverse developments. The probability of a near-term fiscal crisis is difficult to assess: Yields on Treasury debt are within their ranges of the past few decades, which suggests that investors are not that worried about the budget outlook—but debt and deficits are at exceptionally high levels, and experience shows that investors' confidence in a government's fiscal management can deteriorate quickly.Citation
Dynan, Karen, and Douglas Elmendorf. 2025. "Putting US Fiscal Policy on a Sustainable Path." Journal of Economic Perspectives 39 (4): 27–48. DOI: 10.1257/jep.20251450Additional Materials
JEL Classification
- E21 Macroeconomics: Consumption; Saving; Wealth
- E23 Macroeconomics: Production
- E31 Price Level; Inflation; Deflation
- E43 Interest Rates: Determination, Term Structure, and Effects
- E62 Fiscal Policy
- H63 National Debt; Debt Management; Sovereign Debt
- H68 Forecasts of Budgets, Deficits, and Debt