Fiscal Imbalance Initiative

Fiscal imbalances can have adverse long-term macroeconomic consequences. Why? Although fiscal balances may be temporary situations, they confront citizens with uncertainty about how the imbalances will ultimately be repaired by some worrisome combination of tax hikes, reductions in government expenditures, and outright defaults on government bonds and entitlements.

Designing responsible, effective economic and social policy—and understanding its true costs and economic impact—requires dispassionate, scientific analysis of the intertemporal dimensions of taxes and government expenditures over time. The Congressional Budget Office, the Treasury, and other government entities engage in budget forecasts that are supposed to provide input into the conduct of fiscal policy. However, these forecasts are shackled by scoring rules and other bureaucratic restraints that prevent them from making realistic evaluations of the likely macroeconomic ramifications of legislation.

The Becker Friedman Institute is launching this initiative to nurture more credible evaluations of current and alternative fiscal policies, based on a broad array of the best macro- and microeconomic research.

While the activities of the institute are still emerging, we expect that will:

Institute Research Director Lars Peter Hansen will play a leadership role in this project, as will 2011 Nobel Laureate Thomas J. Sargent, Gary S. Becker, James J. Heckman, and others.

An inaugural research conference associated with this initiative will be held in autumn 2011.

The Becker Friedman Institute gratefully acknowledges support for this initiative provided by Donald Wilson.