Abstract

In evaluating the government's financial position, taxpayers need to account not only for its debt, but also for its ownership of tangible assets. Each taxpayer has a share of the government's net worth that is positive; however, the share was larger 10 years ago. While the real net debt tripled, this huge rise in government indebtedness generated no similar gain in government assets. Taxpayers will be paying interest on this debt with little hope of higher future returns from government assets to help pay it off. It is recommended that the government adopt a capital-budgeting system. This system would change the nature of the debate over the size of the budget deficit. Current arguments concern how much of a deficit reduction should come from reducing government spending and how much should come from increasing taxes. Capital budgeting indicates that the composition of government spending - the amount spent on tangible assets – is equally important. Knowing this, taxpayers could be more confident about the extent to which increases in government debt are a burden on future generations.

Document Type

Article

Publication Date

11-1990

Publisher Statement

Copyright © 1990 Federal Reserve Bank of Philadelphia. This article first appeared in Business Review - Federal Reserve Bank of Philadelphia 3 (November/December 1990): 3-12.

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