WORKING AND WHITE PAPERS
FISCAL BALANCING ACT
by Phillip Swagel and Jan Eberly
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Professor in International Economic Policy, Maryland School of Public Policy and Academic Fellow, Center for Financial Policy Phillip Swagel presented the paper he co-authored with Jan Eberly from the Kellog School of Business at Northwestern entitled “Fiscal Balancing Act” commissioned by the Peterson Foundation at the 2014 Clinton Global Initiative. In this paper, the authors explore how to balance existing federal commitments with the need to invest in our future, examining a range of short- and long-run policies aimed at creating an environment for broadly-shared income gains, greater competitiveness and social mobility. They present five key takeaways:
- America’s economic health is closely tied to its fiscal health. In order to have a stable economy with sustained job creation and broad-based growth we need fiscal responsibility. Thus fiscal responsibility is not only a budget issue, but one of productivity and growth.
- Our long-term fiscal picture remains unsustainable. Though the U.S. fiscal position has improved as the economy has recovered since the Financial Crisis, it is still not sustainable and economic growth remains below desired levels.
- Addressing the long-term fiscal imbalance can support economic growth and job creation. A gradual fiscal adjustment would provide the foundation for economic growth and stability. Targeted public investments contribute to prosperity by enhancing productivity and creating an economic environment in which the private sector can thrive.
- Flexibility for future policy makers. By putting our fiscal house in order during the “good” times will give future policymakers greater flexibility to support the economy during the “bad” times.
- Adjustment should be gradual, fair, and protective of the most vulnerable. Fiscal tools provide the safety net we value, thus adjustments should be made in a way to protect the most vulnerable or least able to bear the changes.