This study addresses a fundamentally new feature of the contemporary
world economy: the simultaneous buildup of very large public deficits
and debt positions in virtually all of the advanced high-income
countries. The recent global financial crisis sharply accelerated this
fiscal deterioration, but it was already well underway in some
countries, including the United States, where demographic prospects had
posed extremely worrisome trajectories for a number of years.
The book has three basic objectives. First, it projects the global
fiscal outlook to 2035. Second, it asks whether the combination of
deficits and debt in a large number of countries at the same time
produces an impact on the world economy that is qualitatively different
from the more traditional emergence of such problems in one or a few
countries in any given period. Third, it analyzes the effects of the
fiscal prospects on key economic variables including global interest
rates and growth rates.
The analysis finds that the current public debt profiles in most
advanced economies will grow to dangerous and unsustainable levels over
the next couple of decades unless major changes are made in projected
spending and revenue levels. The authors conclude that the United States
and Japan, in particular, need to start planning now for significant
future budget cuts to minimize the risk of a crisis. Acting soon enables
the adjustment to be phased in over an extended period, which cushions
the inevitable adjustment costs, while avoiding the potentially enormous
pressures that could be levied by markets if correction is delayed too
long.
