Fiscal Imbalance: A Primer
Are governments spending beyond their means? If so, by how much? Are the United States and Europe on paths to becoming Greece? Why? Because of excessive health and retirement spending, or slow growth, or fiscal stimulus, or something else? Did imbalances arise recently, or have they just been ignored? Does waiting to make adjustments help or hurt? And has the slowdown in health cost inflation made current fiscal worries less pressing?
All these questions concern fiscal imbalance, which is the difference between a government’s planned spending and projected revenues. The concept of fiscal imbalance is familiar to economists but less so to policymakers, politicians, and the public. Yet understanding this concept is essential to rational discussion of government financial health.