Congressional Budget OfficeSkip Navigation
Home Red Bullet Publications Red Bullet Cost Estimates Red Bullet About CBO Red Bullet Press Red Bullet Careers Red Bullet Contact Us Red Bullet Director's Blog Red Bullet   RSS
PDF
MEASURING THE FEDERAL DEBT AND DEFICIT:
ADJUSTMENTS AND RATIONALES
 
 
April 1985
 
 

This study was prepared by Frank S. Russek of the Fiscal Analysis Division Under the general supervision of William J. Beeman and Jacob S. Dreyer. Research assistance was provided by Lucia S. Foster, Stacy A. Miller, and Jeffrey Steger. The paper was typed by Debra M. Blagburn and Dorothy J. Kornegay. Questions regarding this analysis may be addressed to Frank S. Russek.
 
 

INTRODUCTION

The unusually large federal deficits experienced in recent years and projected to persist indefinitely under current budget policies have generated considerable interest not only in budget actions to reduce the deficit but also in alternative methods for measuring the deficit. In particular, Robert Eisner and Paul J. Pieper recently have argued that the conventional measure of the deficit--the excess of government outlays over revenues--is not an adequate measure for assessing the impact of the budget on the economy.1 An appropriate measure, in their view, would include adjustments for factors affecting private net wealth such as capital gains (losses) on federal debt resulting from changes in interest rates, deterioration in the real value of federal debt owing to inflation, and federal accumulation of financial assets. They also would adjust the deficit for the passive response of the budget to the business cycle. According to Eisner and Pieper, such adjustments substantially reduce the apparent size of federal deficits in the years prior to the 1981-1982 recession, and could have a significant impact on the fiscal policy outlook. Although the updated analysis presented here suggests similar findings, deficits are projected to be much larger in the 1980s than in the 1970s, even when adjustments to the deficits have been taken into account.

The first two sections of this paper present measures of the deficit and debt reflecting the adjustments proposed by Eisner and Pieper. Both historical data and projections through 1990 are provided. The third section assesses the rationale for each type of adjustment, and examines the implicit assumptions regarding public- and private-sector behavior. The final section considers the policy implications of the adjusted debt and deficit measures. A technical appendix describes the methodology used in producing the various debt and deficit adjustments.

This document is available in its entirety in PDF.

1. Robert Eisner and Paul J. Pieper, "A New View of the Federal Debt and Budget Deficits, American Economic Review, vol. 74, no. 1 (March 1984).