United States: Selected Issues
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The size and sources of international spillovers of activity remain subject to significant uncertainty. This Selected Issues paper uses a new approach to differentiating these effects using disturbances to a diverse group of small industrial countries as a proxy for global shocks. The results from the baseline vector autoregressions suggest that shocks to the United States are significant for foreign activity. The paper also evaluates alternative explanations for the easy financing of the U.S. current account deficit in recent years.

Abstract

The size and sources of international spillovers of activity remain subject to significant uncertainty. This Selected Issues paper uses a new approach to differentiating these effects using disturbances to a diverse group of small industrial countries as a proxy for global shocks. The results from the baseline vector autoregressions suggest that shocks to the United States are significant for foreign activity. The paper also evaluates alternative explanations for the easy financing of the U.S. current account deficit in recent years.

VII. Summary of Applying the GFSM 2001 Framework to U.S. Fiscal Data

Information Note

by Isabel Rial and Cornelis Gorter

1. The Note reports on a study to present the U.S. fiscal data in a manner consistent with the Government Finance Statistics Manual (GFSM 2001). At an Executive Board seminar in 2005, Directors agreed that the use of the GFSM 2001 framework would lead to greater transparency and consistency in the presentation of country fiscal data in staff reports. The Note summarizes how the GFSM 2001 operating statement, integrated balance sheet, and cash statement could be integrated into staff monitoring of the U.S. fiscal sector.

2. The study incorporates cash and accrual data, as well as flows and stocks in a consistent framework, thus enhancing the accuracy and transparency of fiscal data. The sources used are the Budget of the United States Government—mainly on a cash basis—as well as the Financial Report of the United States Government, the National Income Product Accounts (NIPAs), and the Flow of Funds Accounts (FFAs)—all on an accrual basis.

3. The pilot demonstrates that presentation of fiscal data in accordance with GFSM 2001 recommendations is feasible for the U.S. in the short-term. However, the numerical results of the pilot study should still be considered illustrative due to some unresolved data issues.

4. The U.S. pilot study draws attention to:

From an analytical point of view,

  • the less favorable fiscal position of the federal government if, in accordance with international recommendations, the obligations of unfunded government employee pension funds are recognized;

  • the deterioration of federal net worth over the four-year period under analysis.

From a statistical point of view,

  • the existence of data gaps for measuring of federal government net worth, as well as a full integration of stock and flow data; and

  • the need to reconcile cash-based and accrual-based fiscal data in order to foster fiscal transparency.

5. The fiscal outturn of the federal government as measured under GFSM 2001 is less favorable than that derived from accrual-based NIPAs. The discrepancies relate mainly to the treatment of employee pension funds covering federal employees and military personnel. Following the GFSM 2001 methodology, the costs of the unfunded part of pension promises made to staff should be recognized. In 2006, these adjustments increase the deficit by 0.8 percent of GDP on an accrual basis and increase the federal government’s debt by 10 percent of GDP.

6. Unlike the government employee pension funds, social security schemes do not give rise to liabilities in the GFSM 2001 framework. Nevertheless, for long-term fiscal policy and fiscal sustainability analysis the GFSM 2001 recommends including these obligations as a memorandum item to the balance sheet. For the federal government, this memorandum item represented 320 percent of GDP in 2006.

7. Federal government net worth deteriorated by 14.1 percent of GDP over the four-year period under analysis, although at a diminishing rate. While the deterioration has been significant, as shown by the net operating budget (NOB) in Table 1, the authorities achieved equilibrium in the primary net operating balance in 2006. This indicates an improvement in the sustainability of government operations. As the net acquisition of nonfinancial assets was maintained at low levels, the net lending/borrowing (NLB) closely mirrors the evolution of the NOB in terms of magnitude and trend. The net borrowing requirement was financed by an increase in liabilities, primarily securities.

Table 1.

United States: Statement of Federal Government Operations

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Sources: BEA data submission, and STA staff estimates.

The net operating balance equals revenue minus expense, when expense includes the consumption of fixed capital. The gross operating balance equals revenue minus expense other than consumption of fixed capital.

Acquisitions minus disposals and consumption of fixed capital.

Net lending/borrowing equals the net operating balance minus the net acquisition of nonfinancial assets. It is also equal to the net acquisition of financial assets minus the net incurrence of liabilities.

8. The Statement of Operations (Table 1) indicates a high degree of vertical integration—that is, consistency between data on operating transactions and financing. Statistical discrepancies may arise between the NLB and its financing (net acquisition of financial assets minus net incurrence of liabilities) due to data deficiencies. The authorities periodically reconcile both datasets and, in the case of the federal government, the statistical discrepancy accounts for only 0.2 percent of GDP, on average.

9. However, the Integrated Balance Sheet (Table 2) shows horizontal integration to be less robust on account of specific data gaps. These gaps are particularly apparent in the lack of data on nonproduced assets, while the valuation of the stock of assets and liabilities precludes a complete explanation of differences between opening and closing balance sheet. Despite existing data gaps, Table 2 provides an important insight into the composition of government liabilities. In this regard GFSM 2001, by presenting stock and flow data in an integrated framework, fosters data consistency and analysis of changes in net worth.

Table 2.

United States: Integrated Balance Sheet for the Federal Government

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Sources: BEA data submission, and STA staff estimates.

For 2006 the stock of nonfinancial assets was estimated by the addition of the flows on nonfinancial assets to the stock reported for 2005.

Other economic flows consist of holding gains and losses and other changes in the volume of assets and liabilities.

Source: 2006 Financial Report of the United States Government. Corresponds to the net present value of 75-year actuarial projections of benefit payments under current law for Social Security and Medicare in excess of their scheduled contributions and earmarked taxes.

10. The Statement of Sources and Uses of Cash (reported in the Information Notice) suggests a greater margin of comfort in cash-based fiscal operations than the comparable accrual aggregate. The accrual balancing item, the NLB, is higher than the cash deficit in every year under analysis, the difference being (i) expense items that do not have a cash equivalent, and (ii) timing differences in the recording of revenue and expense.

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