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The Economic Crisis and the Fiscal Crisis: 2009 and Beyond

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Publication Date: February 2009

Publisher(s): Tax Policy Center

Author(s): Alan J. Auerbach; William G. Gale

Special Collection: John D. and Catherine T. MacArthur Foundation

Topic: Economics (Economic theory)

Keywords: Federal Budgets & Fiscal Policy; State and Local Issues; Taxes and Social Programs; Economic Stimulus

Type: Report

Abstract:

In 2009, the federal deficit will be larger as a share of the economy than at any time since the 1940s. After 2009, we project an average deficit of $1 trillion per year for the next 10 years, under optimistic assumptions. The longer-run picture is even bleaker, with a fiscal gap of 7-9 percent of GDP -- between $1 trillion and $1.3 trillion annually in current dollars. Recent trends in credit default swap markets suggest that although fiscal policy problems are usually described as medium- and long-term issues, these problems may be upon us much sooner than previously expected.